Financial inclusion experiences from some countries..

IMF econs have released a paper on the same.

Findings are summarised here:

To examine how best to increase financial inclusion, we applied our framework to three low-income countries: Kenya, Mozambique, and Uganda. We also applied it to three emerging market countries: Egypt, Malaysia, and the Philippines.  Here’s what we found:

– Disentangling constraints to financial inclusion is crucial. We identified pertinent constraints to financial inclusion in these countries and evaluated the policy impact of relaxing these constraints on output and inequality. We found that the impact of financial inclusion policies really depends on country-specific characteristics.

For example, Uganda’s output is most responsive to a relaxation of collateral requirements, which is the country’s most binding constraint. By contrast, high participation costs for access to financial services are a major obstacle in Malaysia. Understanding the specific factors that hold back financial inclusion, therefore, is critical for tailoring policy advice.

– Financial inclusion doesn’t necessarily bring more equality immediately. We found that financial inclusion undoubtedly brings an increase in output, though the impact on inequality measured in relative terms (income dispersion) varies. For example, a decline in the cost of accessing financial services reduces income inequality as enterprises previously excluded from the financial system are able to obtain credit and workers receive higher wages.

Relaxing collateral requirements, however, may initially increase inequality. As wealthy firms invest with less collateral to get loans, they can leverage more and increase their production and profit. As banks lower collateral requirements, however, financial inclusion eventually becomes more beneficial for relatively poorer agents, driving down inequality.

– Distributional consequences could be sharp. The consequences of increased financial inclusion can be uneven. Our results indicate that the most effective policy for increasing access to finance— lowering the cost of participation in the financial system—benefits the poor, but wealthy firms can lose somewhat as a result of higher interest rates and wages.

By contrast, we found that policies that target financial depth— such as relaxing collateral requirements—benefit productive firms. Yet such policies also can impose losses on less productive firms as well as those with low credit demand, regardless of whether financial inclusion policies are in effect.

Hmm.. country level experiences always more useful than one size fits all.

Also, we keep seeing how IMF’s research is increasingly getting World Bankish.

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