Has financial inclusion made the financial sector riskier?

Peterson Ozili

Journal of Financial Regulation and Compliance, 2021, vol. 29, issue 3, 237-255

Abstract: Purpose - This paper aims to examine whether high levels of financial inclusion is associated with greater financial risk. Design/methodology/approach - The study uses regression methodology to estimate the effect of financial inclusion on financial risk. Findings - The findings reveal that higher account ownership is associated with greater financial risk through high non-performing loans and high-cost inefficiency in the financial sector of developed countries, advanced countries and transition economies. Increased use of debit cards, credit cards and digital finance products reduced risk in the financial sector of advanced countries and developed countries but not for transition economies and developing countries. The findings also show that the combined use of digital finance products with increased formal account ownership improves financial sector efficiency in developing countries while the combined use of credit cards with increased formal account ownership reduces insolvency risk and improves financial sector efficiency in developing countries. Research limitations/implications - The paper offers several implications for policy and financial regulation. It suggests policies that would reduce the financial risk that financial inclusion poses to the financial sector. Originality/value - The recent interest in financial inclusion and the unintended consequences of policy-driven financial inclusion in some parts of the world is raising concern about the risks that financial inclusion may introduce to the formal financial sector. Little is known about the risks that financial inclusion may pose to the financial sector.

Keywords: Financial inclusion; Digital finance; Fintech; Financial technology; Non-performing loans; Efficiency; Financial innovation; Insolvency risk; Credit card; Debit card; Formal accounts; Account ownership; Black swan; G0; G1; G2; G3; G21; G28; O16 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
Working Paper: Has financial inclusion made the financial sector riskier? (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-08-2020-0074

DOI: 10.1108/JFRC-08-2020-0074

Access Statistics for this article

Journal of Financial Regulation and Compliance is currently edited by Prof John Ashton

More articles in Journal of Financial Regulation and Compliance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().