A Comprehensive Literature Review on Financial Inclusion

Abstract

The economic growth and welfare of a country depend upon the level of accessibility of people to formal financial services. Financial inclusion is a vital component of any country's social, political, and economic development. Access to formal and semi-formal financial services is limited for a large segment of society in many developing countries, especially the low-income population. This paper aimed to review existing literature on financial inclusion. The article comprehensively discusses research on financial inclusion in terms of its definitions, barriers to financial inclusion, costs and consequences, and determinants and measurements of financial inclusion. Using a thematic approach, it reviewed fifty research papers. The review identifies that definitions of financial inclusion vary by geographical level, taking into account the level of socioeconomic and financial development. Furthermore, there is no universally accepted definition of financial inclusion. Besides, financial inclusion is observed mainly in developed countries with a high degree of financial development; financial exclusion can be seen among low-income households. Further, the result showed that financial innovation, intermediaries, and literacy help to increase financial inclusion. There is no comprehensive measure that can be used to indicate financial inclusion and it is measured by specific indicators such as the number of bank accounts and the number of bank branches, and they can provide only a fraction of the information about financial inclusion. However, the review has found that financial inclusion is crucial for inclusive and sustainable growth in developing countries.