Does Economic Policy Uncertainty Reduce Financial Inclusion?

Abstract

This study investigates whether the level of economic policy uncertainty (EPU) would reduce the level of financial inclusion. It was predicted that a high level of EPU could have a negative effect on the level of financial inclusion. It was argued that a high level of EPU would discourage financial institutions from providing basic financial services to low end customers and unbanked adults, and this would lead to a decrease in the level of financial inclusion. Using a sample of 22 countries, the study found that the level of EPU did not have a significant impact on financial inclusion. None of the nine indicators of financial inclusion were found to have a significant direct relationship with EPU. However, there was some evidence that the combined effect of a high level of EPU and high nonperforming loans could reduce financial inclusion, particularly through bank branch contraction and a reduction in the use of electronic payments. Furthermore, the use of formal accounts and credit cards would increase in times of high credit supply and when there was a high level of EPU.

Nexus between government debt, economic policy uncertainty, government spending, and governmental effectiveness in BRIC nations: Evidence for linear and nonlinear assessments

“…More precisely, a 1% increase in EPU in BRIC nations can result in a reduction in the institutional quality by a coefficient of -0.1876% in Brazil, -0.2380% in China, -0.1702% in India, and -0.3601% in Russia. Ozili, (2021) reported that increased EPU led to pain for financial institutions since the cumulative repercussions of nonperforming loans increase with increasing EPU degree. EPU negatively impacts families and individuals that rely on the services and products provided by financial institutions.…”

Financial inclusion and sustainable development: an empirical association

“…Other studies identify some determinants of financial inclusion such as digital finance (Ozili, 2018), financial literacy (Grohmann et al. , 2018), financial regulation (Anarfo and Abor, 2020), economic policy uncertainty (Ozili, 2022), etc.…”

“…The priority given to financial inclusion by governments is hinged on substantial research that shows evidence that financial inclusion promotes economic growth (Kim et al, 2018), greater financial stability (Neaime and Gaysset, 2018), poverty reduction (Koomson et al, 2020), reduction in income inequality (Huang and Zhang, 2020) and mitigating financial risk (Ozili, 2021b), among others. Other studies identify some determinants of financial inclusion such as digital finance (Ozili, 2018), financial literacy (Grohmann et al, 2018), financial regulation (Anarfo and Abor, 2020), economic policy uncertainty (Ozili, 2022), etc.…”

Achieving Financial Inclusion: Whatever It Takes

“…The findings suggest that monetary policy affects financial inclusion, and monetary policy is also influenced by financial inclusion. Ozili (2022) shows that high economic policy uncertainty reduces the level of financial inclusion. Myers et al (2012) point out that in countries like Ireland, Spain, Canada and the UK, credit unions owned by members play a significant role in reaching under-served and excluded communities even though credit unions faced financial and operational problems.…”