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Impact Of Financial Inclusion On Financial Stability Based On Income Group Countries

Author

Listed:
  • Azka Azifah Dienillah
  • Lukytawati Anggraeni

    (Bogor Agricultural University)

  • Sahara

    (Bogor Agricultural University)

Abstract

Financial inclusion is one of strategies to increase inclusive growth in a lot of countries. However it may cause either stability or instability in the financial system and the impact can be different among income group countries. Potential instability in the financial system occurs when financial inclusion causes reduction in credit standard, increasing risk of bank reputation, and uncoresponding regulation in microfinance. Therefore, this research aimed to measure financial inclusion and financial stability indexes between countries and analyze the impact of financial inclusion on financial stability in 19 countries based on income group from 2004-2014. Data were collected from World Bank, the International Monetary Fund (IMF) database, and other sources. The methods used Sarma index to calculate financial inclusion, Albulescu and Goyeau index to calculate financial stability, and Tobit model to analyze the impact of financial inclusion on financial stability. The results show higher income countries have higher financial inclusion and financial stability index than lower income countries. Financial inclusion only has positive significant effect to financial stability in high income countries. Lower and upper middle income countries have to increase availability of financial services to enhance financial inclusion. Moreover, lower and upper middle income countries have to increase financial development to enhance financial stability.

Suggested Citation

  • Azka Azifah Dienillah & Lukytawati Anggraeni & Sahara, 2018. "Impact Of Financial Inclusion On Financial Stability Based On Income Group Countries," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 20(4), pages 1-14, April.
    • Handle: RePEc:idn:journl:v:20:y:2018:i:4:p:1-14
    DOI: https://doi.org/10.21098/bemp.v20i4.859
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    Citations

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    Cited by:

    1. Buthiena Kharabsheh & Omar Khlaif Gharaibeh, 2022. "Determinants of Banks’ Stability in Jordan," Economies, MDPI, vol. 10(12), pages 1-16, December.
    2. Besong, Susan Enyang & Okanda, Tellma Longy & Ndip, Simon Arrey, 2022. "An empirical analysis of the impact of banking regulations on sustainable financial inclusion in the CEMAC region," Economic Systems, Elsevier, vol. 46(1).
    3. Shikha Singh & Mandira Sarma, 2020. "Financial Structure and Stability: An Empirical Exploration," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 9-32.
    4. Antonella Francesca Cicchiello & Amirreza Kazemikhasragh & Stefano Monferrá & Alicia Girón, 2021. "Financial inclusion and development in the least developed countries in Asia and Africa," Journal of Innovation and Entrepreneurship, Springer, vol. 10(1), pages 1-13, December.
    5. Sheng, Yan & Huang, Zhixiong & Liu, Chen & Yang, Zhiqing, 2019. "How does business strategy affect wage premium? Evidence from China," Economic Modelling, Elsevier, vol. 83(C), pages 31-41.
    6. Phan, Dinh Hoang Bach & Narayan, Paresh Kumar & Rahman, R. Eki & Hutabarat, Akhis R., 2020. "Do financial technology firms influence bank performance?," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    7. Damane, Moeti & Ho, Sin-Yu, 2024. "The impact of financial inclusion on financial stability: review of theories and international evidence," MPRA Paper 120369, University Library of Munich, Germany.

    More about this item

    Keywords

    Financial Inclusion Index; Financial Stability Index; Tobit Model;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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