Financial inclusion and business cycles

Abstract

Purpose This study aims to investigate the relationship between financial inclusion and the business cycle. Design/methodology/approach Regression methodology is used to analyze the association between financial inclusion and the business cycle. Findings Using regression estimation, the findings reveal that the level of savings and the number of active formal account ownership are pro-cyclical with fluctuations in the business cycle. Also, savings by adults particularly for women and poor people declines during recessionary periods while the number of active formal account ownership declines for the adult population especially for women during recessionary periods. The findings also reveal that not all indicators of financial inclusion are pro-cyclical with fluctuating business cycles. Practical implications The implication of this observed pro-cyclical effect is that individuals and households will exit the formal financial sector during a recession, as banks become unwilling to lend money to individuals and households during bad times and this will lead to financial exclusion and vice versa. Policymakers seeking to increase the level of financial inclusion in their countries should focus on the timing of financial inclusion policies along the business cycle as the findings suggest that it might be more difficult to achieve financial inclusion objectives during recessions or periods of economic downturns. Originality/value The current debate on financial inclusion pays little attention to whether financial inclusion is pro-cyclical with the fluctuating business cycle. This study explores the association between financial inclusion and the business cycle.

Shadow economy in Africa: how relevant is financial inclusion?

“…Notwithstanding, this study has made an important contribution to the limited body of literature on the relevance of financial inclusion in reducing the size of shadow economy. Future studies may look at the threshold value of financial inclusion to avoid possibility of extreme financial inclusion as suggested by Ozili (2020a, 2020b). It would be of interest if future studies can increase the number of sample size and examine whether similar results hold for other developing countries in Latin America and Asia countries.…”

“…This means that a country with good regulatory financial system may possibly have little or no shadow economy (Blackburn et al , 2012; Bose et al , 2012). However, for effective financial inclusion system, policy time lag is crucial as revealed by Ozili (2020a, 2020b). The author explains that policymakers wishing to achieve the goals of financial inclusion must consider the policy time lag along with the business cycle.…”

Does Economic Policy Uncertainty Reduce Financial Inclusion?

“…The findings of the present study have shown that high levels of EPU had some depressive effects on financial inclusion. Secondly, this study contributes to the financial inclusion literature (see, Mindra et al, 2017;Ozili, 2020a;Zins & Weill, 2016;Ozili, 2020b). The study showed that EPU is a determinant of the level of financial inclusion.…”

“…They found that the per capita real GDP had a positive influence on the level of financial inclusion in developing countries. Ozili (2020b) investigated financial inclusion through the business cycle. The study used the GDP growth rate to measure the state of the business cycle.…”

“…In the financial inclusion literature, financial inclusion has been broadly defined as the provision of affordable formal financial services to households, individuals and small businesses (Ozili, 2018;Zins & Weill, 2016;Ozili, 2020b). The goal of financial inclusion is to reduce the number of unbanked adults, and this has been mostly achieved by expanding financial services to unbanked adults in remote areas (Collard, 2007;Demirgüç-Kunt & Klapper, 2013;Neuberger, 2015;Ozili, 2020a).…”