How Does Financial Inclusion Affect Bank Stability in Emerging Economies?

Runguo Xu

Chapter 4 in Digital Banking and Finance:A Handbook, 2025, pp 89-107 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The effects of financial inclusion (FI) on the safety of financial institutions are the focus of this research. Statistical analysis is performed on data extracted from the annual reports of 116 listed banks in emerging Asian markets, covering the years 2012–2021. The data are analyzed by using the two-step dynamic panel system generalized estimating linear model (GMM). FI is measured using four proxies: the FI index, bank penetration, availability of financial services and usability. In addition, bank stability is assessed using the Z-score. The findings of the study show that FI is significantly and positively related to bank stability. Our results support the FI–stability correlation across all measures of FI. Policymakers should make appropriate decisions regarding risk-taking while considering factors such as FI. Adding market-based metrics of bank risk-taking and expanding the study’s scope to include both established and emerging nations are two ways to achieve this goal.

Keywords: FinTech; Digital Era; Financial Industry; Digital Technology; Digital Financial Industry; Digital Finance; Financial Inclusion; Bank Stability; Emerging Economies; Bibliometric Analysis; Digital Finance Revolution; Global Impacts; Digital Innovation; Insurance; Big Data Applications; Digital Assets in Disarray; Forecasting Bitcoin; Machine Learning Approach; Economic Policy Uncertainty; Cryptocurrency; Bank Shares; Digital Age; Corporate Governance; Risks; Rewards; Assets Tokenization; Future of Money; Central Bank Digital Currencies; Bank Innovation; Risk-Taking Perspective (search for similar items in EconPapers)
JEL-codes: G1 G2 G24 M41 O3 O32 O33 (search for similar items in EconPapers)
Date: 2025
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