The Impact of Institutional Quality on Financial Inclusion

Financial inclusion (FI) is considered crucial in poverty reduction and promoting economic status. However the FI varies greatly across countries. This study explores the determinants of financial inclusion particularly the effect of institutions, both legal and political, on financial inclusion (FI). The study uses data of 64 former colonies and employs 2SLS, DOLS and FMOLS to examine the causal effect of institutions on financial inclusion. The study found that legal and political institutions significantly affect the degree of FI across countries. The study suggests that establishing strong institutions can help countries achieve higher levels of financial inclusion.