The impacts of governance and institution on financial inclusion : evidence from Muslim countries and developing economies

Abstract EN

Using the data of more than 100,000 individuals’ characteristics in the Global Findex database, this paper examines the links between financial inclusion, institutions, and governance using panel data analysis from Muslim and developing countries.

This paper argues that strong economic governance and institutions are important elements in improving financial inclusion especially for the poor segment of the society because markets, economic activity, and transactions more generally, cannot function well in their absence.

The results suggest that governance positively influences financial inclusion by increasing the number of bank accounts and saving in formal financial institutions, but negatively impacts on borrowing behavior.

There are also significant differences across countries and regions in explaining financial inclusion.

The study suggests that removing corruption, increasing transparent legal framework, fair judicial proceedings and good administration are essential for development and raising financial inclusiveness prospects.