Optimal Financial Inclusion
International Finance Review, 21, pp. 1-18, Forthcoming
13 Pages Posted: 2 Apr 2020 Last revised: 13 Jul 2020
Date Written: March 9, 2020
Abstract
This article examines various conditions for optimality in financial inclusion. The optimal level of financial inclusion is achieved when basic financial services are provided to members of the population at a price that is affordable and that price is also economically sufficient to encourage providers of financial services to provide such financial services on a continual basis. Any level of financial inclusion that does not meet these conditions is sub-optimal. The consequences of sub-optimal levels of financial inclusion are reported and I show that maintaining a sub-optimal level of financial inclusion – which is common in many countries – is incentive-inefficient both for users and suppliers of basic financial services.
Keywords: Financial inclusion, Optimal financial inclusion, Demand-side and supply-side financial inclusion, Basic financial services, Access to finance, Excluded population.
JEL Classification: D14, G02, G28
Suggested Citation: Suggested Citation