Does Financial Inclusion Reduce Poverty and Income Inequality in Developing Asia?

Financial inclusion is a broad concept. As defined by Sarma (2008), financial inclusion is the process that ensures the ease of access, availability, and usage of the formal financial system for all members of an economy. The lack of access to the formal financial system (‘financial exclusion’) can be voluntary or involuntary. The World Bank (2014) defines voluntary exclusion as a condition where a segment of the population or of firms chooses not to use financial services either because they have no need for them or due to cultural or religious reasons. In contrast, involuntary exclusion arises from insufficient income and high risk profiles or from discrimination and market failures and imperfections. Policy and research initiatives must focus on involuntary exclusion, as it can be addressed by appropriate economic programs and policies designed to increase income levels and correct market failures and imperfections.