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Published in:
Measuring Financial Inclusion for Asian Economies Read chapter Read first chapter

2016 | OriginalPaper | Chapter

3. Does Financial Inclusion Reduce Poverty and Income Inequality in Developing Asia?

Authors : Cyn-Young Park, Rogelio V. Mercado Jr.

Published in: Financial Inclusion in Asia

Publisher: Palgrave Macmillan UK

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Abstract

Financial inclusion is a broad concept. As defined by Sarma (2008), financial inclusion is the process that ensures the ease of access, availability, and usage of the formal financial system for all members of an economy. The lack of access to the formal financial system (‘financial exclusion’) can be voluntary or involuntary. The World Bank (2014) defines voluntary exclusion as a condition where a segment of the population or of firms chooses not to use financial services either because they have no need for them or due to cultural or religious reasons. In contrast, involuntary exclusion arises from insufficient income and high risk profiles or from discrimination and market failures and imperfections. Policy and research initiatives must focus on involuntary exclusion, as it can be addressed by appropriate economic programs and policies designed to increase income levels and correct market failures and imperfections.

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previous chapter Determinants of Financial Inclusion in Asia
next chapter Financial Inclusion and Monetary Policy in Emerging Asia
Footnotes
1
In this chapter, developing Asia refers to 37 economies in the region including Afghanistan (AFG); Armenia (ARM); Azerbaijan (AZE); Bangladesh (BGD); Bhutan (BTN); Brunei Darussalam (BRN); Cambodia (KHM); the People’s Republic of China (CHN); Fiji (FJI); Georgia (GEO); Hong Kong, China (HKG); India (IND); Indonesia (IDN); Kazakhstan (KAZ); Kiribati (KIR); the Republic of Korea (KOR); the Kyrgyz Republic (KGZ); the Lao People’s Democratic Republic (LAO); Malaysia (MAL); the Maldives (MLV); Mongolia (MNG); Myanmar (MMR); Nepal (NPL); Pakistan (PAK); Papua New Guinea (PNG); the Philippines (PHL); Samoa (WSM); Singapore (SGP); Solomon Islands (SLB); Sri Lanka (LKA); Tajikistan (TJK); Thailand (THA); Timor-Leste (TMP); Tonga (TON); Uzbekistan (UZB); Vanuatu (VUT); and Vietnam (VNM).
 
2
Full sample includes all countries with available data for constructing the financial inclusion indicator. The Developing Asia sample refers to the 37 regional economies that are members of the Asian Development Bank.
 
3
Although Amidžić et al. (2014) defined proxies for a measure of quality, they did not include it in their composite indicator due to lack of reliable and available data.
 
4
We based our country income classification using World Bank classification. Advanced countries refer to those which are members of OECD, developing countries are low-income countries, and the rest are classified as emerging economies.
 
5
Honohan (2007) and Rojas-Suarez (2010) found a negative relationship between financial inclusion and income inequality for their full sample series.
 
6
The pairwise correlation between rule of law and per capita income is around 0.80, which is high.
 
7
See Sarel (1997) for a discussion of the determinants of income inequality and inflation.
 
Literature
Allen, F., Carletti, E., Cull, R., Qian, J., Senbet, L., & Valenzuela, P. (2013). Resolving the African financial development gap: Cross-country comparisons and a within-country study of Kenya (World Bank Policy Working Paper No. 6592). Washington, DC: World Bank.
Amidžić, G., Massara, A., & Mialou, A. (2014). Assessing countries’ financial inclusion standing—A new composite index (International Monetary Fund Working Paper No. 14/36). International Monetary Fund.
Brune, L., Giné, X., Goldberg, J., & Yang, D. (2011). Commitments to save: A field experiment in rural Malawi (World Bank Policy Research Working Paper No. 5748). Washington, DC: World Bank.
Burgess, R., & Pande, R. (2005). Do rural banks matter? Evidence from the Indian social banking experiment. American Economic Review, 95(3), 780–795.CrossRef
Honohan, P. (2007). Cross-country variation in household access to financial services. Prepared for the World Bank conference on “Access to Finance”, March 15–16, 2007.
Honohan, P. (2008). Cross-country variation in household access to financial services. Journal of Banking and Finance, 32, 2493–2500.CrossRef
Leyshon, T. (1995). Geographies of financial exclusion: Financial abandonment in Britain and the United States. Transactions of the Institute of British Geographers, New Series, 20, 312–341.CrossRef
Rojas-Suarez, L. (2010). Access to financial services in emerging powers: Facts, obstacles, and policy implications (OECD Global Development Background Papers). OECD.
Sarel, M. (1997). How macroeconomic factors affect income distribution: The cross-country evidence (International Monetary Fund Working Paper No. 97/152). International Monetary Fund.
Sarma, M. (2008). Index of financial inclusion (Indian Council for Research on International Economic Relations Working Paper No. 215). New Delhi: Indian Council for Research on International Economic Relations
Sinclair, S. P. (2001). Financial exclusion: An introductory survey. Edinburgh: Report of Centre for Research in Socially Inclusive Services, Heriot-Watt University.
World Bank. (2014). Global financial development report 2014: Financial inclusion. Washington, DC: World Bank.
Metadata
Title
Does Financial Inclusion Reduce Poverty and Income Inequality in Developing Asia?
Authors
Cyn-Young Park
Rogelio V. Mercado Jr.
Copyright Year
2016
Book
Financial Inclusion in Asia

Print ISBN: 978-1-137-58336-9

Electronic ISBN: 978-1-137-58337-6

Copyright Year: 2016

DOI
https://doi.org/10.1057/978-1-137-58337-6_3