Abstract

Financial inclusion becomes a priority concern with governments in ASEAN countries such as reduce the lack of access for public to formal financial institutions. Moreover, there is an empirical gap of linkages between institutions and financial inclusion. Thus, the study aims to estimate the effect of institutions on dynamic financial inclusion. Three financial inclusion indicators are employed, namely: debit card ownership, credit card ownership, and domestic credit to GDP ratio. Institutional indicators consist of six indicators following world governance indicators. The research observations are about 88 consisting of cross-sections were eight of ASEAN countries and the time series was 2008-2018. Indeed, a dynamic panel data was employed. In general, the findings exhibit that FEM is the appropriate model under Hausman test. Specifically, debit card ownership and credit card ownership were determined by voice and accountability, and rule of law while domestic credit to GDP ratio was determined by some indicators of institutions such as voice and accountability, political stability, regulatory quality, and control of corruption. Hence, the policy implications were directed to improve the quality of institutions both country and ASEAN levels. The high quality of institutions will stimulate the acceleration and expansion of financial inclusion in ASEAN countries.

Highlights

  • Financial inclusion is designed to solve systemic and institutional weaknesses in financial institutions and transactions. Arun & Kamath (2015) have adopted the definition of financial inclusion by the Center for Financial Inclusion as a “state in which everyone who can use them has access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, with respect and dignity”

  • Debit card ownership and credit card ownership were determined by voice and accountability, and rule of law while domestic credit to GDP ratio was determined by some indicators of institutions such as voice and accountability, political stability, regulatory quality, and control of corruption

  • The study was selected six indicators of institutions published by the World Bank in world governance indicators (WGI), namely: voice and accountability (VA), political stability and absence of violence (PST), government effectiveness (GE), regulatory quality (RQ), rule of law (RL), and control of corruption (CC)

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Summary

Introduction

Financial inclusion is designed to solve systemic and institutional weaknesses in financial institutions and transactions. Arun & Kamath (2015) have adopted the definition of financial inclusion by the Center for Financial Inclusion as a “state in which everyone who can use them has access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, with respect and dignity”. Financial inclusion is designed to solve systemic and institutional weaknesses in financial institutions and transactions. Arun & Kamath (2015) have adopted the definition of financial inclusion by the Center for Financial Inclusion as a “state in which everyone who can use them has access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, with respect and dignity”. Some barriers of financial inclusion were identified by Akudugu (2013) such as rules and regulations of formal financial market operations. These obstacles slow down the development of financial inclusion in a country because of mismatch policies in financial inclusion penetration. Creditworthiness issues because most people who Jurnal Ekonomi Pembangunan, ISSN 1411-6081, E-ISSN 2460-9331

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