Determinants of financial inclusion in Southeast Asia

This study examines the determinants of financial inclusion – in terms of bank account ownership, formal saving, and formal borrowing – among countries in Southeast Asia. Using the World Bank Global Findex dataset, we document low rates of financial inclusion in Cambodia, Indonesia, Laos, Myanmar and the Philippines. Individuals’ access to finance through borrowing is also generally low. Results show that income, educational attainment, being employed, and mobile phone ownership are positively associated with all three financial inclusion indicators. Age effects are nonlinear and vary across the financial inclusion indicators. Post-regression estimates suggest that the likelihood of formal account ownership is highest for individuals between ages 25 and 35, while formal saving and formal borrowing is most prevalent for those between ages 35 and 65. In relation, we find that the key barriers to opening a bank account in these Southeast Asian countries include costs, bank proximity, lack of trust in financial institutions, and individuals’ inability to complete required documentation. Younger individuals and middle-income individuals are more hesitant to open a formal account if a family member has an account already. Policy interventions targeted at breaking down some of these barriers and widening access to finance would boost growth and inclusion in developing countries.