Financial Inclusion, Rather Than Size, Is the Key to Tackling Income Inequality

Abstract

In this paper, we assess empirically whether financial inclusion contributes to reducing income inequality when controlling for other key factors, such as economic development and fiscal policy. We conclude that financial inclusion contributes to reducing income inequality to a significant degree, while the size of the financial sector does not. Although our results are still preliminary and constrained by data limitations, they still bear significant policy implications. More specifically, fostering financial inclusion has one more important by-product, which had hardly been analyzed yet, namely reducing income inequality. More specifically, given the broad definition of financial inclusion used in our analysis, promoting financial inclusion implies facilitating the use of credit to low-income households, as well as granting credit to small and medium-sized enterprises.

Analysis of Financial Inclusion Toward Poverty and Income Inequality

“…The result emphasized that financial inclusion program makes an easy thing for all Avalaible online at http://journals.ums.ac.id, Permalink/DOI: 10.23917/jep.v19i1.5879 Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi dan Pembangunan, 19 (1), 2018, 114-125 society especially low society to get financial service access and can utilize financial services offered as a capital source and financing to improve business activities and come out of poverty and finally minimize income inequality. It strengthens the implementation of government policy and it was in line with a research conducted by García-herrero & Turégano (2015) which stated that financial inclusion has contributed to the decrease of income inequality.…”

Financial Inclusion and Macroeconomic Stability in Emerging and Frontier Markets

“…Bruhn and Love (2014) Increased access to financial services would lead to an improvement in income levels, a higher degree of investment on informal business, and a lower unemployment rate overall. Some existing research has focused on the impact of financial inclusion on income inequality and economic growth (Kim, Yu and Hassan, 2018;Kim, 2016;Park and Mercado, 2015;Turegano and Herrero, 2018), and the well-being of households (Swamy, 2014;Zhang and Posso, 2017).…”

Financial inclusion research around the world: A review

“…2.1.7. International and regional studies Turegano and Herrero (2018) investigate whether financial inclusion contributes to reducing income inequality across countries after controlling for economic development and fiscal policy, and find that financial inclusion contributes to reducing income inequality while the size of the financial sector does not improve financial inclusion. Kabakova and Plaksenkov (2018) investigate the factors enabling financial inclusion in developing economies, and find that socio-demographic, political factors and economic factors were significant factors affecting financial inclusion in developing countries.…”