Financial inclusion and poverty: evidence from developing economies

Abstract

Purpose – This paper examines the impact of financial inclusion on poverty through access to mobile money in developing economies. Design/methodology/approach – The authors employ the principal component analysis to construct an index of financial inclusion using demand and supply indicators, including mobile accounts. The authors use the two-step system GMM estimator for the analysis because of its efficiency and robustness in addressing heteroscedasticity and autocorrelation. Findings – The main finding is that financial inclusion generally increased and significantly reduces poverty in the sample period. Furthermore, income inequality worsens poverty. Research limitations/implications – This study has few limitations. First, the empirical analysis of the study is restricted to macroeconomic factors only because of limited Household Finance Survey data set and time availability. Second, the study is limited to developing countries and the results cannot be generalized. Practical implications – Financial inclusion is a significant policy tool for poverty reduction. There is the need to enhance strategies that further improve financial inclusion by expanding and improving the use of mobile money accounts. Social implications – The paper sheds light on how developing countries can harness financial inclusion to reduce poverty. Originality/value –The paper differs from the previous studies in two ways. Firstly, mobile money account is included in the computation of financial inclusion index over the sample period. It also determines the impact of financial inclusion on poverty for short-run and long-run periods.