Financial Inclusion, Poverty, and Income Inequality in ASEAN Countries: Does Financial Innovation Matter?

Financial inclusion has been gaining attention among scholars and it has been promoted as a key pillar for achieving most of the seventeen United Nations’ Sustainable Development Goals. The aim of this study is to determine the impact of financial inclusion on poverty and income inequality in selected ASEAN countries (Indonesia, Malaysia, Philippines, Thailand, and Vietnam) and investigate if financial innovation is a suitable moderator for financial inclusion’s impact in these relationships. Using the cross-sectionally augmented autoregressive distributed lag technique, this study finds that financial inclusion plays a significant role in reducing poverty. Interestingly, when financial inclusion occurs with financial innovation, financial innovation increases income inequality. This may be due to the unequal benefits of digital financial innovations to the higher-income segments. The lower-income segments are less likely to afford the smart devices and internet services required and are more likely to be finically illiterate, preventing them from receiving similar benefits as the higher-income segments. The results suggest that future financial innovations can solve the issues of financial exclusion, but it must be done sustainably. Financial inclusion should continuously be improved, and future financial innovations should cater to the needs of the poor and lower-income segments.