Financial Inclusion and Extreme Poverty in the MENA Region: A Gap Analysis Approach

Eradicating extreme poverty remains one of the most significant and challenging Sustainable Development Goals (SDGs) in the Middle East and North African (MENA) region. The latest World Bank statistics from 2018 show that extreme poverty in MENA increased from 2.6% to 5% between 2013 and 2015. MENA ranks third among developing regions for extreme poverty, and fell short of halving extreme poverty by 2015 – the target established by the United Nations’ Millennium Development Goals, the precursor to the SDGs. Using system General Method of Moments dynamic panel estimation methodology on annual data for 11 MENA countries and 23 emerging markets (EMs) over the period 1990 – 2017, this study begins by estimating the impact of financial inclusion – using measures of access and usage – on the eradication of extreme poverty by 2030, the first goal of the SDGs. The results of the study indicate that, on one hand, financial access measures have a positive, statistically significant impact on reducing extreme poverty for the full sample as well as the MENA region. On the other hand, financial usage measures are only statistically significant in reducing extreme poverty for the full sample, but not for the MENA region. The second part of the study employs a gap analysis against four poverty targets—0%, 1.5%, 3%, and 5%—and shows that no MENA country and few EM countries will be able to close the extreme poverty gap and reach the target of 0% by 2030 by depending solely on improvements in financial access. These targets are based on the two benchmarks set by the World Bank and the UN, with intermediaries to capture error and give a fuller picture of what is possible. However, if improvements in financial inclusion alone can bring every EM and MENA country except Djibouti and Romania to bring the most accessible target of reducing global extreme poverty to no more than 5% by 2030. Policy considerations can be directed towards developing and promoting the infrastructure needed for the widespread delivery and usage of financial services, especially for the MENA and EM countries lagging behind the extreme poverty target. Special attention should be paid to the support of digital financial inclusion for its ability to help individuals cope with shocks without reducing consumption. Delivery and usage of financial technology is predicted to magnify the impact of financial inclusion on poverty reduction both directly – as shown in this paper – and indirectly – through channels related to other SDGs. Additionally, governments in the MENA region must take data quality and availability more seriously if they expect to reverse the acceleration of extreme poverty in the digital age.