Abstract
Financial inclusion has been gaining attention among scholars and it has been promoted as a key pillar for achieving most of the seventeen United Nations’ Sustainable Development Goals. The aim of this study is to determine the impact of financial inclusion on poverty and income inequality in selected ASEAN countries (Indonesia, Malaysia, Philippines, Thailand, and Vietnam) and investigate if financial innovation is a suitable moderator for financial inclusion’s impact in these relationships. Using the cross-sectionally augmented autoregressive distributed lag technique, this study finds that financial inclusion plays a significant role in reducing poverty. Interestingly, when financial inclusion occurs with financial innovation, financial innovation increases income inequality. This may be due to the unequal benefits of digital financial innovations to the higher-income segments. The lower-income segments are less likely to afford the smart devices and internet services required and are more likely to be finically illiterate, preventing them from receiving similar benefits as the higher-income segments. The results suggest that future financial innovations can solve the issues of financial exclusion, but it must be done sustainably. Financial inclusion should continuously be improved, and future financial innovations should cater to the needs of the poor and lower-income segments.
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Notes
Bernier and Plouffe (2019) and Mader (2018) have stated that financial inclusion’s impact on the poor is inconclusive. Park and Mercado (2018) found that in the developing Asia region, financial inclusion can reduce poverty, but has no impact on income inequality. While Neaime and Gaysset (2018) has the opposite finding in the Middle East and North Africa Region (MENA).
Sharma (2016) used three dimensions to measure financial inclusion, namely penetration of banking institutions, availability or access of banking services, and resultant usage of banking services.
Narayan (2005)has considered less than 50 observations small, while observations with more than 500 are considered large, and this study has 220 observations.
Indonesia has a financial literacy rate of 32%, Malaysia’s is 36%, Thailand’s is 27%, the Philippines’s is 25%, and Vietnam’s is 24% (Klapper et al., 2015).
1433 Fintech firms in 2019, compared to 479 firms in 2014 (United Overseas Bank et al., 2019).
Malaysia has the highest average internet users at 67.57%, followed by Vietnam at 43.93%, Thailand at 36.49%, the Philippines at 28.63%, and Indonesia at 21% (World Bank, 2021).
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Partial financial support was received from Curtin Malaysia Graduate School through the Partial MPhil Curtin Malaysia Postgraduate Research Scholarship (CMPRS).
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Wong, Z.Z.A., Badeeb, R.A. & Philip, A.P. Financial Inclusion, Poverty, and Income Inequality in ASEAN Countries: Does Financial Innovation Matter?. Soc Indic Res 169, 471–503 (2023). https://doi.org/10.1007/s11205-023-03169-8
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DOI: https://doi.org/10.1007/s11205-023-03169-8