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Optimal financial inclusion for financial stability: Empirical insight from developing countries

Author

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  • Sebai, Meriem
  • Talbi, Omar
  • Guerchi-Mehri, Hella

Abstract

This paper investigates the impact of financial inclusion on financial stability in 26 developing countries from 2004 to 2020. Using a panel smooth transition regression model, the results reveal a nonlinear relationship between financial inclusion and financial stability. Initially, financial inclusion enhances banking stability. However, beyond a certain point, increased financial inclusion gradually diminishes financial stability, exhibiting an inverted U-shaped relationship. These findings emphasize the importance of adopting a balanced financial inclusion strategy and an adaptive regulatory framework to mitigate potential risks to overall financial stability.

Suggested Citation

  • Sebai, Meriem & Talbi, Omar & Guerchi-Mehri, Hella, 2025. "Optimal financial inclusion for financial stability: Empirical insight from developing countries," Finance Research Letters, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finlet:v:71:y:2025:i:c:s154461232401496x
    DOI: 10.1016/j.frl.2024.106467
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