Financial inclusion and its impact on financial efficiency and sustainability

Empirical evidence from Asia

Thai Ha Le, Anh Tu Chuc, Farhad Taghi Zadeh Hesary

Research output: Contribution to journalArticle

Abstract

This study examines the trend of financial inclusion in Asia and its impact on financial efficiency and financial sustainability. For this purpose, the study employs a sample of 31 Asian countries during the period spanning from 2004 to 2016. Composite indicators for the three financial dimensions are constructed using principal component analysis (PCA) based on normalized variables. We find that the trends are fluctuating across countries and there is no clear pattern in several cases. The findings are robust to different normalization techniques. Furthermore, the impact of financial inclusion on financial efficiency and sustainability is analysed using Feasible Generalized Least Squares (FGLS). The estimation results indicate that growing financial inclusion negatively affects financial efficiency while favourably influences financial sustainability. The findings hold for the whole sample as well as across the two subsamples of countries with different income levels. This implies that while there are policy synergies between growing financial inclusion and maintaining financial sustainability, proper attention needs to be paid to the side effect of financial inefficiency associated with increasing financial inclusion.

Original languageEnglish
JournalBorsa Istanbul Review
DOIs
Publication statusPublished - 2019 Jan 1

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Asia
Financial inclusion
Financial efficiency
Sustainability
Empirical evidence
Generalized least squares
Side effects
Composite indicators
Inefficiency
Normalization
Asian countries
Synergy
Principal component analysis
Income level

Keywords

  • Asia
  • Financial inclusion
  • Panel data analysis
  • Principal component analysis
  • Standardization

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

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abstract = "This study examines the trend of financial inclusion in Asia and its impact on financial efficiency and financial sustainability. For this purpose, the study employs a sample of 31 Asian countries during the period spanning from 2004 to 2016. Composite indicators for the three financial dimensions are constructed using principal component analysis (PCA) based on normalized variables. We find that the trends are fluctuating across countries and there is no clear pattern in several cases. The findings are robust to different normalization techniques. Furthermore, the impact of financial inclusion on financial efficiency and sustainability is analysed using Feasible Generalized Least Squares (FGLS). The estimation results indicate that growing financial inclusion negatively affects financial efficiency while favourably influences financial sustainability. The findings hold for the whole sample as well as across the two subsamples of countries with different income levels. This implies that while there are policy synergies between growing financial inclusion and maintaining financial sustainability, proper attention needs to be paid to the side effect of financial inefficiency associated with increasing financial inclusion.",
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