The Impact of Financial Inclusion on Poverty Reduction

Abstract

Poverty is a global issue and a lot of attention and efforts of the international community have been made to deal with this problem. Especially in the context of the COVID-19 pandemic, when a part of the population could fall into poverty due to rising unemployment and income deduction, identifying the factors affecting poverty becomes particularly important. Financial inclusion has been recognized as one important factor affecting poverty reduction. This research is conducted to investigate the impact of financial inclusion and other control variables on poverty reduction. The study employs Principal Component Analysis (PCA) to build a financial inclusion index. Using 2SLS and the GMM regressions for a panel data of 29 European countries during the period from 2011 to 2017, the results show that financial inclusion has a negative impact on poverty at all three poverty lines of USD1.9, 3.2, and 5.5 per day. The proportion of the population aged 15–64 and the ratio of service employment to the total number of employment also have a negative effect on all three levels of POV1.9, POV3.2, and POV5.5. In contrast, GDP per capita, trade openness and the proportion of the population aged from 25 with at least secondary school education have a positive impact on poverty at three levels of poverty. The results confirm that financial inclusion plays an important role in reducing poverty. The study provides a number of recommendations to governments to promote financial inclusion and reduce poverty in the countries.

Digital Financial Inclusion: COVID-19 Impacts and Opportunities

“…Financial inclusion is considered an important factor in reducing poverty and overcoming income inequality. In the conditions of the COVID-19 pandemic, which led to a decrease in economic activity and a reduction in household income, this issue has become even more urgent [1,2]. In addition, the importance of financial inclusion is related to its positive impact on financial security, macroeconomic stability, and inclusive growth, which was confirmed by the results of many scientific studies [3][4][5][6][7][8], as well as its enabling of many of the Sustainable Development Goals.…”

Nexus between Environmental Degradation, Clean Energy, Financial Inclusion, and Poverty: Evidence with DSUR, CUP-FM, and CUP-BC Estimation

“…This suggests that banks should be introduced and encouraged to involve people more and reduce poverty significantly. Further evidence can be found in the studies of [23,57], which researched poverty reduction through financial inclusion in sub-Saharan Africa; ref [24], considering 29 European countries; ref [27], considering 33 Indonesian provinces; and ref [19], considering 53 developing nations.…”

“…It also helps poor people become more prosperous by giving them access to financial services such as banking, insurance, and microfinance institutions. In many countries worldwide, people who are financially excluded from mainstream markets cannot save money or make investments that would allow them to improve their lives [23,24]. The relationship between environmental degradation and poverty is not a straightforward one.…”

Corruption and corporate leverage in an emerging economy: The role of economic freedom

“…In contrast, firms in an environment of high EF are not deterred by the aforementioned hindrances because of the facilitation of government policy. The standards and requirements of EF, especially those of the WTO, have been forcing Vietnam toward policy improvements (Tran & Phan, 2018). This leads to an exponential reduction in asymmetric information which, facilitates the progress of connecting the parties involved in the process of accessing capital because lenders can mitigate expected loss and control risks better (Phan & Archer, 2020).…”

“…Despite the government's efforts to pursue anti‐corruption strategies (Vu, 2014), the level of corruption in Vietnam is still considered relatively high compared to its Asian counterparts, with magnifying impacts on SMEs, in both the hospitality industry and the construction sector (Maruichi & Abe, p. 8). Economic freedom, on the other hand, is a more positive picture in Vietnam, as the World Trade Organization (WTO) transparency principles have raised the need to improve its policy toward trade openness (Tran & Phan, 2018). The resulting financial liberalization has led to Vietnam's increased flow of capital and stock ownership (Vo, 2015).…”