Bank Concentration, Competition, and Financial Inclusion

Abstract

Expanding access to financial services holds the promise to help reduce poverty and foster economic development. However, little is still known about the determinants of the outreach of financial systems across countries. Our study is the first attempt to employ a large panel of countries, several indicators of financial inclusion and a comprehensive set of bank competition measures to study the role of banking system structure as a determinant of cross-country variability in financial outreach for households. We use panel data from 83 countries over a 10-year period to estimate models with both country and time fixed effects. We find that greater banking industry concentration is associated with more access to deposit accounts and loans, provided that the market power of banks is limited. We find evidence that countries in which regulations allow banks to engage in a broader scope of activities are also characterized by greater financial inclusion. Our results are robust to changes in sample, data, and estimation strategy and suggest that the degree of competition is an important aspect of inclusive financial sectors.JEL Codes: G21, L11, O16

Do Transparency and Anti-Monopoly Policies Matter for Financial Development? Evidence from a Panel ARDL-PMG Approach

“…On the other hand, competition among financial institutions increases the availability of financial services and reduces the cost of finance. Therefore, anti-monopoly policies and a higher degree of competition facilitate the inclusiveness of financial sectors (Owen & Pereira, 2018). Consistent with this argument, Asongu, Nwachukwu, and Tchamyou (2016) argued that competition and information sharing curtail corruption in lending, which leads to improvement in the financial market.…”

“…Lack of competition undermines the growth and development of financial dependent industries (Khan et al, 2018). Conversely, the significant but negative effect in the long-run shows that the higher degree of competition may decrease credit availability and stimulate financial constraints due to adverse selection issues and restrictive banks' incentives to build lending relationships (Álvarez & Bertin, 2016;Owen & Pereira, 2018).…”

“…Nevertheless, adequate implementation of the transparency policies in the presence of government effectiveness may combat corruption and restrict democratic retrenchment in the long-run that improves the sustainability of financial systems. Correspondingly, competition improves financial markets to a certain level, but when the excessive risk-taking starts gaining momentum, adverse selection and information asymmetry may lead to financial instability and fragility in the long-run (Álvarez & Bertin, 2016;Owen & Pereira, 2018). Additionally, macroeconomic stability may facilitate transparency and anti-monopoly policies in both the short and long-run.…”

Financial inclusion in China: an overview

“…Studies prove that competition within the banking industry has a significantly positive effect on financial inclusion (Chinoda and Kwenda 2019b). Also, the banking industry concentration was significantly associated with access to banking accounts and credit (Owen and Pereira 2018). Studies show that the size of the banking system cannot improve financial inclusion (Turegano and Herrero 2018).…”

Cross-country variation in financial inclusion: a global perspective

“…One strand of the literature focuses on single measures of financial inclusion. The most widely used is the proportion of adults that have an account (including transactions, savings, or loan accounts) at a bank or other formal financial intermediary (Allen et al, 2016;Honohan, 2008;Rojas-Suarez, 2010;Demirgüç-Kunt & Klapper, 2013;Beck, Demirguc-Kunt, & Martinez Peria, 2007;Owen & Pereira, 2018). Another single measure of financial inclusion is account "usage" that captures the frequency or the volume of account use (Allen et al, 2016;Demirguc-Kunt, Klapper, & Singer, 2013).…”