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The foundations of financial inclusion : understanding ownership and use of formal accounts

Author:	Allen, Franklin; Demirguc-Kunt, Asli; Klapper, Leora; Peria, Maria Soledad Martinez;	Collection Title:	Policy Research working paper ; no. WPS 6290
Country:	World;	Date Stored:	2013/04/05
Document Date:	2012/12/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	The World Region
Report Number:	WPS6290	SubTopics:	Access to Finance; Emerging Markets; Economic Theory & Research; Banks & Banking Reform; Debt Markets
Volume No:	1 of 1	Related Dataset:	Global Financial Inclusion Database (Global Findex);

Summary: Financial inclusion -- defined here as the use of formal accounts -- can bring many welfare benefits to individuals. Yet the authors know very little about the factors underpinning financial inclusion across individuals and countries. Using data for 123 countries and over 124,000 individuals, this paper tries to understand the individual and country characteristics associated with the use of formal accounts and what policies are effective among those most likely to be excluded: the poor and rural residents. The authors find that greater ownership and use of accounts is associated with a better enabling environment for accessing financial services, such as lower account costs and greater proximity to financial intermediaries. Policies targeted to promote inclusion -- such as requiring banks to offer basic or low-fee accounts, exempting some depositors from onerous documentation requirements, allowing correspondent banking, and using bank accounts to make government payments -- may be especially effective among those most likely to be excluded. Finally, the study the factors associated with perceived barriers to account ownership among those who are financially excluded and find that these individuals report lower barriers in countries with lower costs of accounts and greater penetration of financial service providers. Overall, the results suggest that policies to reduce barriers to financial inclusion may expand the pool of eligible account users and encourage existing account holders to use their accounts with greater frequency and for the purpose of saving.


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