Demand-side Factors for Financial Inclusion: A Cross-country Empirical Analysis

Abstract

The importance of an inclusive financial system in the overall growth and economic development of a nation is well recognized. While most studies on financial inclusion use supply-side data, this article presents a demand-side analysis of factors associated with financial inclusion. Making use of a large cross-country data on financial inclusion status and individual characteristics of adult individuals, we econometrically establish that individual characteristics and economic circumstances play very significant role in determining financial inclusion of adult individuals, after taking into account other factors of the country. The article uses three indicators of financial inclusion and several explanatory variables such as country-specific factor (gross domestic product [GDP] per capita), individual characteristics and individual economic circumstances of adult individuals from different countries. We find that in general, being woman, less educated, jobless and poor are negatively associated with financial inclusion of individuals. Enhanced level of education and income, in general, enhances likelihood of financial inclusion. These findings should be taken into account while formulating policies towards promotion of financial inclusion.