Idiosyncratic Elements of Financial Inclusion in Pakistan

Abstract

For a better future of any country, it is recognized throughout the world that financial-inclusion (later on FI) plays a very important role for eradicating of poverty and prosperity of the country. More than 50% of the adult-population of Pakistan is completely unbanked. The banking sector plays a dynamic role in the economic-development. There are many factors of low level of financial inclusion. The goal of this research is to examine the specific bank and macro-economic factors of FI in the context of Pakistan over 2001-2024. The GMM and random effect regression implemented for the analysis. The empirical results show that that bank-size, bank-efficiency, and interest-rate have a significant impact. Likewise, on the demand side literacy rate has a positive impact. The age exhibits the negative effect. Results of the study suggested that various micro and macro level benefits can be derived from greater financial inclusion. Further, these results are also beneficial for both the government and bank management in developing their policies to ensure more inclusive financial system. These findings suggest that reducing the interest rate and increasing bank networking, the unbanked people will be attracted towards formal financial services. Finally, the study also suggested that by making people financially literate, the less developed countries can speed up their economic growth by improving their financial market participation.