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How Does Financial Inclusion Affect Bank Stability in Emerging Economies?

In: Digital Banking and Finance A Handbook

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  • Runguo Xu

Abstract

The effects of financial inclusion (FI) on the safety of financial institutions are the focus of this research. Statistical analysis is performed on data extracted from the annual reports of 116 listed banks in emerging Asian markets, covering the years 2012–2021. The data are analyzed by using the two-step dynamic panel system generalized estimating linear model (GMM). FI is measured using four proxies: the FI index, bank penetration, availability of financial services and usability. In addition, bank stability is assessed using the Z-score. The findings of the study show that FI is significantly and positively related to bank stability. Our results support the FI–stability correlation across all measures of FI. Policymakers should make appropriate decisions regarding risk-taking while considering factors such as FI. Adding market-based metrics of bank risk-taking and expanding the study’s scope to include both established and emerging nations are two ways to achieve this goal.

Suggested Citation

  • Runguo Xu, 2025. "How Does Financial Inclusion Affect Bank Stability in Emerging Economies?," World Scientific Book Chapters, in: Christopher E C Gan & Nirosha Hewa-Wellalage & Ahmed Imran Hunjra (ed.), Digital Banking and Finance A Handbook, chapter 4, pages 89-107, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800616257_0004
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    Keywords

    FinTech; Digital Era; Financial Industry; Digital Technology; Digital Financial Industry; Digital Finance; Financial Inclusion; Bank Stability; Emerging Economies; Bibliometric Analysis; Digital Finance Revolution; Global Impacts; Digital Innovation; Insurance; Big Data Applications; Digital Assets in Disarray; Forecasting Bitcoin; Machine Learning Approach; Economic Policy Uncertainty; Cryptocurrency; Bank Shares; Digital Age; Corporate Governance; Risks; Rewards; Assets Tokenization; Future of Money; Central Bank Digital Currencies; Bank Innovation; Risk-Taking Perspective;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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