Financial Inclusion & Human Development: A Cross Country Analysis

DOI 10.14707/ajbr.160020

Ayushi Raichoudhury
KIIT School of Management, KIIT University

Abstract

Financial Inclusion has been the area of concern in the recent years. Despite being a policy priority in many countries still 2.5 billion people in the world—do not have access to savings accounts and other formal financial services according to Consultative Group to Assist the Poor (CGAP 2011).

The paper attempts to measure financial inclusion using a cross country data set from Financial Access Survey (FAS) and the index of financial inclusion (IFI) developed by Sarma (2012). Then it presents an empirical analysis of the relationship between financial inclusion and human development across countries.

It is found that levels of human development and financial inclusion in a country move closely with each other, although a few exceptions exist. The correlation coefficient between IFI and HDI values and ranks was calculated to be 0.82 and 0.85 respectively implying significant positive correlation between the two indices.

It is also seen that income level and financial inclusion in a country move closely with each other. Majority of the high income countries are the high IFI countries.

Keywords: Financial Inclusion, income level, Index of financial inclusion