Financial inclusion appears to be positively correlated with per capita income growth: IMF
Jan 06, 2023
New Delhi [India], January 6 : The International Monetary Fund said that financial inclusion appears to be positively correlated with per capita income growth. Furthermore, greater financial inclusion is associated with significant poverty reduction.
The IMF's book -- South Asia's Path to Resilient Growth -- launched on Friday said financial inclusion is a multidimensional concept, with implications for growth and financial and economic stability. "Staff research has shown potentially significant growth benefits from financial inclusion, especially for low-income developing countries (LIDCs) in Asia-Pacific," IMF stated in the book.
It also said financial inclusion appears to be positively correlated with per capita income growth. "Furthermore, greater financial inclusion is associated with significant poverty reduction."
IMF said that greater access of firms and households to various banking services, as well as increasing women users of these services, leads to higher growth. Sectors dependent on external finance grow more rapidly in countries with greater financial inclusion.
South Asia has made significant strides in terms of financial inclusion. For example, account ownership in India and Sri Lanka is well above the levels expected of countries with similar income levels, according to IMF.
However, IMF wrote in the book that, "There remains significant room for improving inclusion, including through increasing the share of active usage of accounts and reducing gender gaps in South Asia, which, at 18 percentage points, rank as one of the largest in Asia."
Transactions by both banked and unbanked continue to rely heavily on cash, though steady progress has been made in recent years. IMF said digitising such payments offers great potential and can spur an increase in account penetration and the use of accounts. Recent IMF studies showed that South Asia can reap growth dividend from improving financial inclusion. "Closing the financial inclusion gap of South Asian countries in relation to the frontier is associated with a gain in growth by around 1 percentage point."
According to the book, IMF said the steady progress in financial inclusion in South Asia in recent years has benefited from the priority the authorities in South Asian countries have placed on improving inclusion, including through financial inclusion strategies and innovation.
IMF said, "For example, the launch of the Pradhan Mantri Jan Dhan Yojana programme in India in 2014, one of the world's largest financial inclusion initiatives to date, is one prominent example of India's national-level commitment to advancing financial inclusion."
