How Inclusive Financial Policies Affect Bank Lending?

Abstract

Following the global financial crisis, developing countries adopted various enabling inclusive financial policies (IFPs) to spur broad-based growth. We manually construct an index of IFPs and examine their impact on bank lending and firms’ borrowing using a generalised difference-in-differences (DiD) approach, augmented by a distributed-lag model and several recent DiD estimators. We find a positive impact of IFPs on bank lending and firms’ long-term borrowing. Increased lending is channelled via better loan quality and growth in deposits. Our results underscore that increased adoption of IFPs reduces the gender credit gap, making it easier for women to access loans. The results are robust to an array of robustness checks and have significant implications for policymakers seeking to promote financial inclusion and economic growth.

Keywords: financial inclusion policies, bank loans, firms' borrowing, gender gap, difference in difference