VARIATION AND DETERMINANTS OF FINANCIAL INCLUSION AND THEIR ASSOCIATION WITH HUMAN DEVELOPMENT: A CROSS COUNTRY ANALYSIS

The importance of financial inclusion is felt mostly in the context of a vast chunk of poor people in the world who remain deprived of adequate access to needed financial facilities that may turn their lot for the better. The present study seeks to analyse the financial inclusion scenario across developed and  developing countries of the world, for the years 2011 and 2014. The study focusses on developing a financial inclusion index and finds its association with the value of the human development index. It also focusses on the explanation of variation in observed financial inclusion indices. Here, emphasis is laid on inclusion based on banking service extension as it develops investment climate with easy access to credit, motivates even low income group people to save in banks for future higher earnings and helps enhance peoples’ capability through better handling of their own income. Principal component method has been applied to calculate the three dimension indices (availability, access and usage), and finally a financial inclusion index. A pooled OLS with clustered standard error regression model has been used to explain the variation in  financial inclusion across the selected countries of the world. There, however, exist wide variations in the level of financial inclusion across high, medium and low developed countries. It is also observed that there exists a positive correlation between values of financial inclusion index and human development index. Empirical analysis reveals that factors such as per capita gross national income, percentage of urban population, percentage of population aged 15-64 and income group specific dummy variables have significant association with the level of financial inclusion. Some countries however, are yet to achieve better banking extension services. Better achievements regarding financial inclusion requires extension of bank credit to real asset creation activity that ensures income generation. However, this drive from the supply side cannot ensure inclusion unless there is demand for such services backed by generation of sustainable livelihood activities.