Effective financial inclusion and the need to put the horse before the cart: Saving!

The financial inclusion paradigm is increasingly considered a veritable development model. Therefore, we argue that a deeper understanding of it is necessary for enabling policies and strategies that would yield positive development outcomes (successful financial inclusion). We explore this argument by first, defining “effective financial inclusion” along the lines of identifiable population groups that are often financially excluded from mainstream financial services; and second, by hypothesizing that large national savings pools are a crucial prerequisite for effective financial inclusion. Furthermore, we posit that if effective, financial inclusion should enhance economic welfare, thus engendering “successful financial inclusion.” We evaluate these hypotheses by using a battery of econometric techniques, and document robust supportive findings. Moreover, we evolve first-of-its-kind robust definition of financial inclusion and provide unambiguous evidence that would guide governments and other stakeholders on how to leverage financial inclusion, as a development model, more productively. Importantly, we highlight the primacy of large savings pools for effective financial inclusion.