This thesis focuses on financial inclusion (FI) across countries. FI is defined by the Consultative Group to Assist the Poor (CGAP) as the procedure of providing all entities (households and businesses) with access to an affordable and high-quality range of financial products and services, which should be provided responsibly and sustainably in a wellregulated environment. The thesis can be divided into three papers (Chapters 2, 3 and 4).The Chapter 2 examines measures of FI that include both the indexes and some simpler indicators derived from the World Bank’s global financial inclusion (FINDEX) database and
the IMF’s Financial Access Survey (FAS) database. Indexes of financial inclusion (IFI) are constructed (where the data permitted) for around 183 countries between 2011 and 2017.The six consistency conditions suggested by Bauer et al (1998) are applied to compare IFIs.
The findings show that only two indexes fulfil the consistency conditions, namely, the Sarma (2012) index and a new index (NI) suggested in chapter 2 of this thesis. Moreover, using various approaches (two-step system Generalized Method of Moments (GMM) dynamic panel estimation, fixed effect two stage least squares (2SLS) with instrumental variables (IV), and fixed effect estimates) the study confirms that FI reduces income inequality, improves human development, and boosts economic growth. In addition, the Sarma (2012)
index and the NI have performed better than FAS and FINDEX indicators with
macroeconomic factors.
Chapter 3 studies the determinants of FI using a wide selection of possible determinants from the literature. FI is measured using the index of Sarma (2012) and NI; simpler indicators derived from the FAS and FINDEX database are also included. The study covers 80 countries from 2011 to 2017. The analysis carried out includes fixed effect panel estimators, and fixed effect 2SLS with an IV. The findings reveal that income, human development, rule of law, and banks’ credit to banks’ deposit ratio are the main determinants of the level of FI at macro-economic level.
Chapter 4 examines whether countries with considerable Muslim populations (CCMPs) have a lower level of FI compared to the rest of the world (RW). FI is measured by the index of Sarma (2012) and the NI; simpler indicators derived from the FAS and the FINDEX database are also included. The study covers 80 countries (22 CCMPs and 58 from the RW) between 2011 and 2017. The results demonstrate that the difference in the overall level of FI between CCMPs and the RW is insignificant. Looking at each aspect of FI show that the difference
in level of FI is insignificant in financial demographical and geographical coverage as well as in firms’ level of FI. However, there is a significant difference at the percentage of population participating in the financial system.
Chapter 4 examines whether the introduction of Islamic banks can raise the level of FI in CCMPs. However, the result turned out to be insignificant. This is because the IBs have a negative relationship with some aspects of FI cancel off the positive relationship with other aspects. There are five reasons behind the negative relationship that IBs have with some of the aspects of FI. First, the limited number of Islamic financial products and services.Second, the low ratio of credits to deposits in IBs, which considered one of the main determinant of FI. Third, the risk and cost of financial services in IBs. Fourth, previous studies that suggested introducing IBs to enhance the level of FI in CCMPs have not directly
measured the relationship between IBs and FI. Fifth, financial awareness and financial literacy. Therefore, regulators and policymakers should evaluate the business model applied by IBs and modify it in a way that enhance the level of FI.