FINANCIAL MANAGEMENT PRESENTATION

Financial Inclusion in
Under-Developed
Countries
Presented by: ShahAreeb, Waleed and Marium
In This Presentation

Here's what we'll cover:

• What is financial inclusion
• Research methodology of case study
• Result/ Findings of research
• Application and Recommendations
• Conclusion
Financial
Inclusion Defined
the availability and equality of
opportunities to avail financial
services.

OR

providing financial services to the

one which are not been provided
with these services yet (vast section
of disadvantaged and low-income
groups)
 Why
Financial
Inclusion?
Overcoming poverty Growth of Alternate Micro Economy

Empowering people Parallel economic development

Social Stability
 • Financial inclusion is a key factor in reducing poverty and inequality by
providing access to financial products and services such as savings, credit,
insurance, and payments.

• The World Bank and G-20 have led initiatives to expand financial inclusion in
developing and emerging countries

• Financial inclusion expands the deposit and loan portfolio and diversifies
risk for banks which helps in controlling inflation.
A brief Introduction
• However, regulatory pressure to mitigate credit risk and increase bank
stability may contribute to the unintended exclusion of the most
disadvantaged customers.

• According to the study, The financial systems of Latin American and

Caribbean countries are less dependent on banks, with equity and bond
markets playing a more important role.

• Conversely, Sub-Saharan African countries remain underdeveloped and

dependent on banks
 The findings suggest that financial inclusion can have positive effects on
financial stability, especially when it is related to the expansion of deposits and
savings rather than credit expansion

• By providing individuals and businesses with access to safe and affordable

savings accounts.
BUT

• Excessive lending, on the other hand, can lead to a buildup of non-performing

Examining the relationship loans.
between Financial inclusion • credit expansion can also weaken financial stability because it can lead to
and Financial Stability increased credit risk and potential loan defaults

Financial regulation is found to increase bank resilience and prevent financial

instability, but it may also reduce financial inclusion in some contexts.

• Financial regulation can increase bank resilience and prevent financial

instability by setting standards and guidelines that banks must follow in order
to ensure their safety and soundness

HOWEVER

• Financial regulation can also have unintended consequences that may reduce
International sample of countries, with a
particular emphasis on studies conducted in
financial inclusion in some contexts
the African and Asian regions
Methodology
• Overall, the study uses a comprehensive set of variables to capture various dimensions of financial inclusion, financial stability, financial
regulation, credit risk, bank efficiency, bank size, banking environment, and macroeconomic conditions. By using these variables, the aim was
to provide a more comprehensive analysis of the relationship between financial inclusion and financial stability in SSA and LAC countries.

• For data collection the World Bank and IMF databases were used.

• The period used for the analysis was from 2005–2018 and collected data from 46 Sub Saharan African countries and 31 Latin American and
Caribbean countries.

• Financial inclusion was measured by the Principal Component Analysis

• To represent financial regulation, they used the capital adequacy ratio.

• They used the Boone index to measure competitiveness in the banking sector

• As for banks’ profitability, we use return on equity (ROE) as an indicator, due to the greater availability of data.
 • Descriptive Statistics:
• Results show that on average 320 adults in SSA countries have
access to a bank account and in only six adults in LAC countries per
100,000 adults.

Results
• Correlation Matrix:
• The results suggest that there is a positive and weak correlation
between financial inclusion and financial stability for the two
samples.

• There is a significant but negative correlation between

competitiveness and financial stability,

• As well as competitiveness and credit risk,

• A positive and significant correlation between competitiveness and

profitability in the sample of SSA countries
Conclusion
• financial inclusion and competitiveness can contribute to financial stability by promoting financial sector development, but these factors may also pose risks to
financial stability if there is inadequate financial regulation.

• Through analysis of data from a sample of 46 developing countries over a 10-year period, using a panel data regression model to estimate the relationship between
financial inclusion, competitiveness, financial stability, and financial regulation.

• It was found that greater financial inclusion and competitiveness are associated with higher levels of financial stability, as measured by indicators such as bank non-
performing loans and systemic risk. However, it was also seen that the positive effects of financial inclusion and competitiveness on financial stability are moderated
by the quality of financial regulation.

• The conclusion of the article summarizes the key findings of the study and highlights the policy implications. It is argued that policymakers in developing countries
need to focus not only on promoting financial inclusion and competitiveness but also on strengthening financial regulation to mitigate the risks associated with these
factors.

• It is suggested that effective financial regulation can help to ensure that financial inclusion and competitiveness contribute to greater financial stability and ultimately
support economic development in developing countries.

• Overall, the article provides a comprehensive analysis of the relationship between financial inclusion, competitiveness, financial stability, and financial regulation in
developing countries.

• The findings suggest that policymakers need to take a holistic approach to financial sector development that focuses on promoting financial inclusion,
competitiveness, and financial stability while also strengthening financial regulation to mitigate the risks associated with these factors.