Financial Inclusion and Human Development

The link between financial inclusion and human development is examined here. Using cross-country data, the behavior of variables that try to capture these concepts is examined and preliminary evidence of a positive association is offered. However, because establishing a causal relationship with macro-data is difficult, a thorough review of the literature on the impact of financial inclusion, focusing on micro-studies that can better address identification is conducted. The literature generally distinguishes between different dimensions of financial inclusion: access to credit, access to bank branches, and access to saving instruments (i.e., accounts). Despite promising results from a first wave of studies, the impact of expanding access to credit seems limited at best, with little evidence of transformative effects on human development outcomes. While there is more promising evidence on the impact of expanding access to bank branches and formal saving instruments, studies show that some interventions such as one-time account opening subsidies are unlikely to have a sizable impact on social and economic outcomes. Instead well-designed interventions catering to individuals’ specific needs in different contexts seem to be required to realize the full potential of formal financial services to enrich human lives.