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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Notes
- 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.
- 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.
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Park, CY., Mercado, R.V. (2016). Does Financial Inclusion Reduce Poverty and Income Inequality in Developing Asia?. In: Gopalan, S., Kikuchi, T. (eds) Financial Inclusion in Asia. Palgrave Studies in Impact Finance. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-58337-6_3
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