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The foundations of financial inclusion : understanding ownership and use of formal accounts

Author

Listed:
  • Allen, Franklin
  • Demirguc-Kunt, Asli
  • Klapper, Leora
  • Peria, Maria Soledad Martinez

Abstract

Financial inclusion -- defined here as the use of formal accounts -- can bring many welfare benefits to individuals. Yet the authors know very little about the factors underpinning financial inclusion across individuals and countries. Using data for 123 countries and over 124,000 individuals, this paper tries to understand the individual and country characteristics associated with the use of formal accounts and what policies are effective among those most likely to be excluded: the poor and rural residents. The authors find that greater ownership and use of accounts is associated with a better enabling environment for accessing financial services, such as lower account costs and greater proximity to financial intermediaries. Policies targeted to promote inclusion -- such as requiring banks to offer basic or low-fee accounts, exempting some depositors from onerous documentation requirements, allowing correspondent banking, and using bank accounts to make government payments -- may be especially effective among those most likely to be excluded. Finally, the study the factors associated with perceived barriers to account ownership among those who are financially excluded and find that these individuals report lower barriers in countries with lower costs of accounts and greater penetration of financial service providers. Overall, the results suggest that policies to reduce barriers to financial inclusion may expand the pool of eligible account users and encourage existing account holders to use their accounts with greater frequency and for the purpose of saving.

Suggested Citation

  • Allen, Franklin & Demirguc-Kunt, Asli & Klapper, Leora & Peria, Maria Soledad Martinez, 2012. "The foundations of financial inclusion : understanding ownership and use of formal accounts," Policy Research Working Paper Series 6290, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6290
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    References listed on IDEAS

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    Cited by:

    1. Byson Beracah Majanga, 2016. "The Journey to Financial Inclusion in Malawi- What Does the Future Hold?," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 2(9), pages 169-175, 09-2016.
    2. repec:kap:jfamec:v:38:y:2017:i:4:d:10.1007_s10834-017-9531-x is not listed on IDEAS
    3. Zuzana FUNGACOVA & Iftekhar HASAN & Laurent WEILL, 2016. "Trust in banks," Working Papers of LaRGE Research Center 2016-09, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    4. repec:gam:jsusta:v:10:y:2018:i:4:p:1200-:d:141288 is not listed on IDEAS
    5. Fungáčová, Zuzana & Weill, Laurent, 2015. "Understanding financial inclusion in China," China Economic Review, Elsevier, vol. 34(C), pages 196-206.
    6. repec:eee:jocaae:v:13:y:2017:i:3:p:263-281 is not listed on IDEAS
    7. repec:cml:incocp:7en-08 is not listed on IDEAS
    8. repec:ovi:oviste:v:xvii:y:2017:i:1:p:195-204 is not listed on IDEAS
    9. Agyekum, Francis & Locke, Stuart & Hewa-Wellalage, Nirosha, 2016. "A search for Theory of Financial Market Failure in Lower Income Countries (LICs) and implication for Financial Exclusion," MPRA Paper 82861, University Library of Munich, Germany, revised 15 May 2017.
    10. David Michael Gould & Martin Melecky, 2017. "Risks and Returns," World Bank Publications, The World Bank, number 25494, July.
    11. Ximena Pena & Carmen Hoyo & David Tuesta, 2014. "Determinantes de la inclusion financiera en Mexico a partir de la ENIF 2012," Working Papers 1414, BBVA Bank, Economic Research Department.
    12. repec:cml:incocp:7en-10 is not listed on IDEAS
    13. Iyanatul Islam & Martina Hengge, 2015. "Renewing the full employment compact: issues, evidence and policy implications," Chapters,in: Labour Markets, Institutions and Inequality, chapter 3, pages 65-92 Edward Elgar Publishing.
    14. Han, Rui & Melecky, Martin, 2017. "Broader use of saving products among people can make deposit funding of the banking system more resilient," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 89-102.
    15. Ghosh, Saibal & Vinod, D., 2017. "What Constrains Financial Inclusion for Women? Evidence from Indian Micro data," World Development, Elsevier, vol. 92(C), pages 60-81.
    16. Ahamed, M. Mostak, 2016. "Does inclusive financial development matter for firms’ tax evasion? Evidence from developing countries," Economics Letters, Elsevier, vol. 149(C), pages 15-19.
    17. Rouse, Marybeth & Verhoef, y Grietjie, 2017. "Mobile banking in Sub-Saharan Africa: setting the way towards financial development," MPRA Paper 78006, University Library of Munich, Germany.
    18. Agyekum, Francis & Locke, Stuart & Hewa-Wellalage, Nirosha, 2016. "Financial Inclusion and Digital Financial Services: Empirical evidence from Ghana," MPRA Paper 82885, University Library of Munich, Germany, revised 15 May 2017.
    19. Terrence Kairiza & Philemon Kiprono & Vengesai Magadzire, 2017. "Gender differences in financial inclusion amongst entrepreneurs in Zimbabwe," Small Business Economics, Springer, vol. 48(1), pages 259-272, January.
    20. Llanto, Gilberto M. & Rosellon, Maureen Ane D., 2017. "What Determines Financial Inclusion in the Philippines? Evidence from a National Baseline Survey," Discussion Papers DP 2017-38, Philippine Institute for Development Studies.
    21. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.
    22. Ozili, Peterson Kitakogelu, 2018. "Impact of Digital Finance on Financial Inclusion and Stability," MPRA Paper 84771, University Library of Munich, Germany.
    23. Keshav Sood & Shrabani Mukherjee, 2016. "Triggers and Barriers for ‘Exclusion’ To ‘Inclusion’ in the Financial Sector: A Country-Wise Scrutiny," Working Papers 2016-154, Madras School of Economics,Chennai,India.

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    Keywords

    Access to Finance; Banks&Banking Reform; Emerging Markets; Debt Markets; Economic Theory&Research;

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