Abstract
This study aims to examine the relationship between financial inclusion and financial stability in Jordan by using Fully Modified Least Squares (FMOLS) technique. The analysis is based on time series from 2006 to 2017. Jordanian financial inclusion index is developed to assess the level of financial inclusion, whereas financial stability was measured by Jordanian financial stability index proposed by Central Bank of Jordan. The results show a weak significant and positive impact of financial inclusion on the financial stability in Jordan. Additionally, five control variables are used in the study. The results show a negative impact of domestic credit to private sector, income inequality, financial integration, and global financial crisis on financial stability. In contrast, real GDP per capita has a significant and positive impact. It is expected that the findings of the study can be used by policy makers and supervising authorities to realize the objectives of the national strategy of financial inclusion in Jordan.
Highlights
Access to and use of financial services is considered an important factor in accelerating sustainable economic and social growth, reducing poverty and unemployment, and enhancing the stability of the financial sector (Zins & Weill, 2016)
Jordanian financial inclusion index is developed to assess the level of financial inclusion, whereas financial stability was measured by Jordanian financial stability index proposed by Central Bank of Jordan
It can be noted that the value of Variance Inflation Factor (VIF) is less than 10, and the value of tolerance is above 0.1, which indicates the absence of multicollinearity
Summary
Access to and use of financial services is considered an important factor in accelerating sustainable economic and social growth, reducing poverty and unemployment, and enhancing the stability of the financial sector (Zins & Weill, 2016). Inability to obtain finance affects economic growth and poverty negatively. This is due to the idea that the lack of funds’ access prevents the poor from saving and investing in income generating enterprises. Easy access of finance encourages enterprises to invest more, accept more risk and stimulate economic growth (Neaime & Gaysset, 2018). The reluctance of financial institutions to deal with some customers because of their low income and high risk of lending. FI changes the structure of the financial system because of the increase of both financial transactions and customers, and risks associated with these conditions (Hannig & Jansen, 2010)
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