Abstract
Exclusion from the mainstream financial world is a burden on the poor of many countries. The proliferation of new mobile and online financial services, such as e-banking, money transfers, and payment processing has the potential to provide access to basic financial products and services to financially excluded people. The purpose of this study was to investigate the effects of the growth of mobile phone and Internet use on financial inclusion in the South Asian Association for Regional Cooperation (SAARC) countries from 2004 to 2014. We applied principal component analysis to construct a financial inclusion index that served as a proxy variable for the accessibility of financial services in the SAARC countries. Using three different models-the fixed effect, random effect, and panel correction standard errors models-this study discovered a positive and significant relationship between the growth of financial inclusion and expansion of both mobile phone and Internet services. Moreover, an empirical study of the control variables showed that the levels of income and education were positively associated with financial inclusion, whereas the size of the rural population and unemployment were negatively related to financial inclusion. In addition, the empirical estimates posit a unidirectional causal flow from the growth of mobile and Internet services to expanded financial inclusion in the SAARC countries.
Highlights
Financial inclusion is one of the unspoken key drivers for building an inclusive society and inclusive economy
Dimension 1 In this index, we used the number of commercial bank branches and the number of ATMs per 1000 km2 to measure the geographic dimensions of financial inclusion in South Asian Association for Regional Cooperation (SAARC) countries
Our findings showed that use of both mobile phones and the Internet are statistically significant, and they have a positive impact on financial inclusion in the SAARC countries
Summary
Financial inclusion is one of the unspoken key drivers for building an inclusive society and inclusive economy. Member countries of the South Asian Association for Regional Cooperation (SAARC) have paid considerable attention to promoting financial inclusion in their respective nations. The levels of financial inclusion and development vary widely among the SAARC countries. For vast numbers of people, formal financial products and services have been out of reach. Financial exclusion is caused by demand factors as well as supply factors. To speed up the drive toward greater financial inclusion, initiatives must be taken from both the demand and supply sides. Focusing on supply-side factors alone will not solve the problem of financial exclusion.
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