Does Economic Policy Uncertainty Reduce Financial Inclusion?

• Main Author: Ozili, Peterson K
• Format: Article
• Language: English
• Published: UUM Press 2022
• Subjects: HG Finance
• Online Access: https://repo.uum.edu.my/id/eprint/29212/1/IJBF%2017%2001%202022%2053-80.pdf; https://repo.uum.edu.my/id/eprint/29212/; https://doi.org/10.32890/ijbf2022.17.1.3

This study investigates whether the level of economic policy uncertainty (EPU) would reduce the level of financial inclusion. It was predicted that a high level of EPU could have a negative effect on the level of financial inclusion. It was argued that a high level of EPU would discourage financial institutions from providing basic financial services to low end customers and unbanked adults, and this would lead to a decrease in the level of financial inclusion. Using a sample of 22 countries, the study found that the level of EPU did not have a significant impact on financial inclusion. None of the nine indicators of financial inclusion were found to have a significant direct relationship with EPU. However, there was some evidence that the combined effect of a high level of EPU and high nonperforming loans could reduce financial inclusion, particularly through bank branch contraction and a reduction in the use of electronic payments. Furthermore, the use of formal accounts and credit cards would increase in times of high credit supply and when there was a high level of EPU.