A Theoretical and Quantitative Analysis of Financial Inclusion and Economic Growth

The heterogeneity in view about the financial inclusion prevails across the globe. Since the need of financial products varies from individual to individual and country to country ( Kempson and Whyley, 1999 ; Regan and Paxton, 2003 ; Speak and Graham, 2000 ). But, majority of researchers and thinkers opine that ‘financial inclusion is the easy availability of all banking services at an affordable cost, reasonable time & adequate quantity to all needy people and which should also be available in appropriate forms’ (broader sense); ‘financial inclusion includes the easy access of all people to the minimum basic financial services’ (narrow sense). The determinants and impacts of financial inclusion are main ingredients of the article. The depth ratio emerged as leading contributor in the value of financial inclusion index among all the three variables—depth or penetration, availability and usage—across the world, including Indian states, through the log-linear regression model. The study further indicated that a 1 per cent increase in the financial inclusion led to on an average 0.142 per cent increase in the value of human development index (cross-country data); while in case of Indian states, it resulted into 0.139 per cent increase in the index. The depth, availability and usages ratios were found to be inversely associated to the poverty. The study found only three states of India in between high financial inclusion position, while remaining 90 per cent states belong to very low/weak financial inclusion status. On the basis of findings of the study, it is suggested that the policy makers around the globe should strive to surge the level of financial inclusion for an optimal, sustainable, inclusive economic growth and development of the economies by focusing on removing the regional imbalances.