Does financial inclusion enhance financial stability? Evidence from a developing economy

Abstract

In response to the global 2007–2009 financial crisis, central banks and policy makers globally, have spearheaded reforms aimed at improving financial stability. At the same time, a lot of effort and resources have been devoted to access and use of quality financial services by both households and firms. Existing literature suggests both positive and negative impact of financial inclusion on financial stability, but this is yet to be empirically validated. This paper investigates the effect of financial inclusion on financial stability in Kenya. Estimation results reveals that financial inclusion enhances financial stability. Therefore, policies that promote greater financial inclusion would boost financial stability.