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Financial
Institutional determinants of inclusion
financial inclusion: evidence from
world economies
Tarek Eldomiaty, Rasha Hammam and Rawan El Bakry 217
Faculty of Business Administration and International Trade,
Misr International University, Cairo, Egypt Received 26 August 2019
Revised 24 December 2019
Accepted 30 January 2020

Abstract
Purpose – Financial inclusion is an approach for mobilizing saving and facilitating investments that help
promote economic development and pave the way for sustainable development. This paper aims to examine the
impact of world governance indicators (WGIs) on the improvement of financial inclusion across world economies.
Design/methodology/approach – This paper uses the global database of financial inclusion indicators
(global findex) for the years 2011, 2014 and 2017. The WGIs are used as proxies for the effects of
governmental institutional arrangements. Using panel data analysis, a fixed generalized linear model is
estimated for four common financial indicators; namely, borrowed from a financial institution, saved at a
financial institution, credit card and debit card ownership.
Findings – The empirical results reveal that control of corruption, government effectiveness, political
stability and voice and accountability are the significant WGIs that influence financial inclusion significantly.
Originality/value – This paper contributes to the literature in two ways. First, this paper offers validating
the results previously reported in related studies. Second, this paper offers robust estimates of the effects of
the institutional WGIs on the promotion of financial inclusion.
Keywords Financial inclusion, Global findex, World economies, World governance indicators
Paper type Research paper

Introduction
Programs of financial inclusion have recently taken central attention by economists, as well
as policymakers to reach economic and social benefits. Financial inclusion is defined as “a
process that ensures ease of access, availability and usage of financial services for all
members of society” (Sarma, 2008). Accordingly, the improvement in financial inclusion
facilitates higher saving rates, which are crucial for increasing capital accumulation,
reducing poverty, improving economic development and in return enhancing economic
growth (Park and Mercado, 2018).
The G20 Toronto summit declaration in 2010 launched principles for innovative financial
inclusion. These principles include, among others, developing financial literacy, creating an
institutional environment with clear lines of accountability and coordination within
government. Furthermore, the UN General Assembly in 2015 emphasizes on considering
financial inclusion as a policy objective in financial regulation in accordance with national

JEL classification – G28 International Journal of

The authors appreciate very much indeed the comments and recommendations offered by two Development Issues
Vol. 19 No. 2, 2020
anonymous reviewers that indeed added to the value and readability of the paper. The gratitude pp. 217-228
extends also to Professor Dr Dilip Dutta, the editor of the journal, for the invaluable understanding © Emerald Publishing Limited
1446-8956
and cooperation. DOI 10.1108/IJDI-08-2019-0147
IJDI priorities and legislation. The UN positioned financial inclusion as a prominent approach to
19,2 achieve the 2,030 sustainable development goals where financial inclusion is featured as a
target in 8 of the 17 goals; for instance, eradicating poverty, promoting economic growth and
decent jobs and supporting industry.
The above-mentioned movements indicate that institutional arrangements are required
to bring about good governance for promoting programs of financial inclusion that result in
218 engagement of larger sector of people in financial intermediations, stimulating financial
development and economic growth (Sethi and Acharya, 2018; Law and Azman-Saini, 2012;
Demetriades and Law, 2006).
This paper aims to examine the impact of the six world governance indicators (WGIs) on
indicators of financial inclusion across the World economies. The paper uses the global
database of financial inclusion indicators global findex for the years 2011, 2014 and 2017
that cover 140 world countries. The indicators reflect the availably, access and usage of
financial services by countries’ residents.
Relatively speaking, there is narrow empirical literature that examines robust links
between government governance and financial inclusion. Accordingly, the contribution of
this paper can be outlined as follows.

the paper examines the most frequent measures of financial inclusion in the
literature to offer fair validation to the results in the other related studies taking into
consideration that the paper includes world economies; and

this paper examines a new view in the literature that financial inclusion requires
institutional arrangements that, in turn, require governmental systematic
intervention. In this case, WGIs offer relevant measures of the extent to which
institutional governance helps strengthen efforts of financial inclusion.

The paper is organized as follows. The first section discusses the measures and empirical
findings of financial inclusion. The second section discusses the impact of WGIs on financial
inclusion. The third section discusses the data, statistical tests and estimation. The fourth
section discusses the empirical findings. The fifth section concludes.

The conceptual link between governance and financial inclusion

The conceptual link between programs of financial inclusion and governance is rooted deeply
in the importance of governance to financial development. To enhance financial development,
there is a need to enforce the rule of law and curb down levels of corruption. One of the pillars of
financial development is financial access; hence, financial inclusion and governance are also
interrelated (Sayılır et al., 2018; Sharma and Tuli, 2012). In fact, the institutional environment
hosting financial entities plays a key role in improving financial inclusion. Countries with great
execution of the law, political stability and respect for creditors’ and debtors’ rights will
definitely encourage individuals’ involvement in the financial intermediaries. Basically, better
institutional quality increases the trust in the financial system and enhances financial inclusion
(Rojas-Suarez, 2010; Honohan, 2008). Hence, financial inclusion is more of a governance issue
and less of a financial issue (Kochhar, 2010).

Financial inclusion: measures and empirical findings

This section reviews the studies that focus on the measurement and determinants of
financial inclusion, as well as the performance of financial inclusion efforts around the
world.
Measures of financial inclusion Financial
Sarma (2008) introduces a multi-dimensional index that captures information on three inclusion
dimensions of financial inclusion; namely, banking penetration, availability of the banking
services and usage of the banking system in one single-digit lying between 0 and 1, where 0
denotes complete financial exclusion and 1 indicates complete financial inclusion in an
economy. Another approach is the “global findex” database, which is constructed by the
World Bank. This database is based on the Gallup World poll through nationally
representative surveys of more than 150,000 adults in 140 countries. Presenting a new set of 219
indicators that measure how adults in 140 economies save, borrow, make payments and
manage risk. Recently, Park and Mercado (2018) introduced a new index of financial
inclusion for 151 economies using the principal component analysis to compute weights for
aggregating 9 indicators of access, availability and usage of financial services. Moreover,
there is a strand in the empirical literature, that is related to the implied benefit of
strengthened financial inclusion on economic development and growth (Sarma and Pais,
2011; Demirguc-Kunt et al., 2017; Park and Mercado, 2018).

Determinants of financial inclusion

The earliest studies on financial inclusion are related to its determinants. Honohan (2008)
emphasizes that higher mobile phone penetration and better institutions of governance are
correlated across countries with higher household access to financial services. Furthermore,
Allen et al. (2012) indicate that lower account costs, closeness to financial intermediaries,
stronger legal rights and more politically stable environments are important determinants to
financial inclusion. On the other hand, some studies underline the importance of literacy
level and awareness of different banking services in addition to the income level as crucial
determinants that pave the way toward greater financial inclusion (Kumar and Laha, 2012;
Akudugu, 2013; Grohmann et al., 2018).

Performance of financial inclusion across world countries

Since 2011, about 700 million adults worldwide have signed up for an account at a formal
financial institution (like a bank) or a mobile money account in which 62 per cent of adults now
have an account (Klapper and Singer, 2017). East Asia and the Pacific made an outsized
contribution to this global progress. About 240 million adults in the region left the ranks of the
unbanked; 69 per cent now have an account. Yet, cost, geographic access and lack of
identification are the most reported barriers to financial inclusion that can be addressed by
policymakers. Zins and Weil (2016) argue that the main barrier to financial inclusion is the
basic lack of money. After using the World Bank’s global findex database on 37 African
countries to perform Probit estimations; they conclude the fact that the African continent is at a
leading position concerning mobile money banking, especially in East Africa where more than
73 per cent of Kenyans are mobile money customers. They added that in Sub-Saharan Africa,
36 out of 54 countries have mobile banking services. While in lower-to-middle income countries,
around 2.5 billion people have no access to banking services. Moreover, they indicate that
saving habits in the African continent are different in comparison to the world. That is, the
main drives of savings in Africa are for education (21.3 per cent), for farm or business (19.6 per
cent) and for old age (10.3 per cent). While the main source of credit in Africa is family and
friends where borrowing formally accounts to only 6.7 per cent.
In the EU region, Coffinet and Jadeau (2017) indicate that there is substantial variation
among the member states in terms of “financial inclusion score” although overall the
majority of the countries are fairly advanced in their efforts to make the financial system
inclusive. There is a strong heterogeneity across the euro area, in which households from
IJDI Greece, Cyprus, Poland and Slovakia are more financially excluded. The aftermath of the
19,2 crisis did not increase the financial exclusion of vulnerable households as a whole, but had
rather country-specific effects, pointing out systemic risks over some banking systems.
Nevertheless, the percentage of total exclusion was 7 per cent in the EU’s 15 members.
In the Arab World, it stands at 21 per cent outreach of formal financial services excluding
the Gulf Cooperation Council (GCC) countries. Similar to account ownership, the Arab world
220 lags behind other regions in terms of access to credit from formal financial institutions.
Although 44 per cent of adults reported having a loan according to the global findex survey,
only 6 per cent of them are borrowing from a formal financial institution. Credit outreach in
the region, when excluding GCC countries, is less than half of most other developing regions
globally, it was concluded that GCC countries, as well as Lebanon and Jordan, have a deeper
outreach of formal credit when compared to other countries (Chehade et al., 2017). Yet, the
weakness of financial inclusion indicators in the Arab World is not due to lower demand for
financial services, as the region shows equal or higher financial activity, but due to lower
outreach of formal financial services, be it for account ownership or credit.
Moreover, Latin America has a large financial inclusion gap in terms of account
ownership. It is reported that institutional weaknesses play the most prominent role (Rojas-
Suarez, 2016). For instance, the direct and indirect confrontational effect from the low
institutional quality and lack of enforcement of the rule of law directly reduces depositors’
incentives to entrust their funds to formal financial institutions.

Impact of world governance indicators on financial inclusion

This section reviews the empirical country panel analysis studies that examine the impact of
WGI on Financial Inclusion in developing and developed countries. Park and Mercado
(2015) examine the determinants of financial inclusion in 37 developing Asian economies
over the period 2004-2012. They report that each of the per capita income, rule of law and
population have a positive significant effect on financial inclusion. In particular, the
escalation of the rule of law through enforcement of financial contracts should reduce
voluntary financial exclusion. Ghazal and Zulkhibri (2017) examine the impact of
governance and institutions on financial inclusion across 69 developing and emerging
economies across different regions; namely Sub-Saharan Africa, Middle East and North
Africa, South Asia, East Asia and Pacific, Eastern Europe and Central Asia for years 2011
and 2013. The results reveal that good governance in terms of elimination of corruption,
enhancement of transparent legal framework and rule of law and good administration
should catalyze financial inclusion through increasing the number of bank accounts and
saving in formal financial institutions. They further explain that although the results show
significant differences across the regions studied, yet, robust governance and institutions
develop better financial inclusion especially for the lower-income fragment in each country.
In the same context, Ajide (2017) studies the impact of institutional infrastructure on
financial inclusion in 18 Sub-Saharan African countries over the period 2004-2010. The
author uses automatic teller machines (ATMs) per 100,000 adults, bank branches per
100,000 adults and ATMs per 1,000 km as three different measures for financial inclusion.
The results show that government effectiveness had a positive significant effect on (ATMs)
per 100,000 adults. Yet, the regulatory quality, rule of law and control of corruption have a
positive significant impact on bank branches per 100,000 adults. Nevertheless, the control
variables such as gross domestic product (GDP) per capita, Inflation and bank concentration
have a positive significant impact on the three measures of financial inclusion. Bakari et al.
(2018) report very close results about African countries.
 In fact, the literature concludes converging results in which governance measures have Financial
significant impacts on financial inclusion. inclusion
Data, statistical tests and estimation
This section presents the empirical investigation of the impact of WGI on financial inclusion
across world economies. This section is divided into four parts. The first and second parts
present the data and the model used. The third part discusses the methodology adopted in 221
the empirical analysis and the fourth part reported the results.

Data
Dependent variable. The financial inclusion is measured using four measures that are
extracted from findex (https://globalfindex.worldbank.org/) for the years 2011, 2014 and
2017. These measures are borrowed from a financial institution (per cent age 15þ) (bor),
credit card (per cent age 15þ) (credit), saved at a financial institution (per cent age 15þ)
(save) and debit card (per cent age 15 þ) (debit).
The measures of financial inclusion examined in this paper are the most frequently
examined in the related literature. The motivation for choosing these specific measures is
two folds. First, the use of the same specific measures of financial inclusion enables fair
comparison to other related studies in the literature. Second, the use of the same measures of
financial inclusion offers validation to the results previously reached in other related studies.
In addition, Shaban et al. (2019) emphasize that the borrowing/savings dimension accounts
for the highest proportion (0.36) in the total variation of financial inclusion, followed by the
account and payment dimensions (0.32 and 0.31, respectively).
Independent variables. These variables include the logarithm of WGI (https://info.
worldbank.org/governance/wgi/#home), which is prepared and published by the World
Bank. The WGIs includes six dimensions; namely,
(1) voice and accountability (vacc);
(2) political stability and absence of violence (pol);
(3) government effectiveness (gov);
(4) regulatory quality (reg);
(5) rule of law (law); and
(6) control of corruption (cor).

Control variables. These variables include the annual inflation rate (infl) and the annual
GDP per capita growth rate (gdp). In addition, dummy variables are added to control for
differences in geographical regions; namely, East Asia and Pacific countries, Europe and
Central Asia countries, Latin America and Caribbean countries, Middle East and North
Africa countries, South Asian countries and Sub-Saharan Africa countries.

Model specification
Panel regression analysis is used to assess the impact of WGIs on each of the four measures
of financial inclusion.
Financial Inclusionit ¼ f ðWGIsÞ
IJDI Statistical testing and estimation
19,2 Kruskal–Wallis test. Kruskal and Wallis (1952) test are used to determine the statistically
significant differences between two or more independent groups of different sample size. A x 2
statistic is used to evaluate differences in mean ranks to assess the null hypothesis that
medians are equal across the different independent groups. Kruskal–Wallis test is examined in
this paper to verify the significant difference between the four measures of financial inclusion.
222 Hausman test. Hausman (1978) test is used to choose between a fixed or random-effects
model.
Generalized linear model. The generalized linear model analyzes the effects of continuous
and categorical predictor variables on a discrete or continuous dependent variable.
(McCullagh and Nelder, 1989).
Financial Inclusionit ¼ b 1 vaccit þ b 2 polit þ b 3 regit þ b 4 regit þ b 5 laeit þ b 6 corrit
X
6
þ b 7 inflit þ b 8 gdpit þ b 9j dummy geographical regionj þ « it
j¼1

where
i = the countries;
t = the time interval;
j = refers to the geographical regions; and
« = refers to the error term.

Results and discussion

Kruskal–Wallis test. The results reported in Table I, show that the p-value is significant at
the 1 per cent level. This result indicates that the four measures of financial inclusion are
significantly different from each other. This is a necessary condition to ensure that the
results of each regression model are exclusive.
Hausman test results. As far as in Hausman test the null hypothesis is that the random-
effects model is an appropriate test, the results reported in Table II, show that the null hypothesis
is rejected in the four models of financial inclusion implying that fixed effects fit the data.
Panel generalized linear model output. Table III reports the estimates of four models for
different measures of financial inclusion. The results show that control of corruption has a

Table I. x 2 degrees of freedom x 2 statistic Prob

Kruskal–Wallis test
result 3 805.2038 0.0000

Measures of financial inclusion x 2 statistic x 2 degrees of freedom Prob

Borrowed from a financial institution (% age 15þ) 14.788425 7 0.0388

Saved at a financial institution (% age 15þ) 35.953136 7 0.0000
Debit card (% age 15 þ) 32.782971 7 0.0000
Credit card (% age 15þ) 49.791813 7 0.0000
Table II.
Hausman test results Note: Fixed effect model vs Random effect model
 (1) Borrowed from a financial institution (% (2) Saved at a financial institution (% (3) Debit card (% age (4) Credit card (% age
Dependent variables age 15þ) age 15þ) 15 þ) 15þ)

Dependent variables
(WGIs)
Control of corruption 0.022 (0.034) ** 0.064 (0.010) ** 0.099 (0.006) *** 0.077 (0.002) ***
Rule of law 0.009 (0.457) 0.024 (0.402) 0.036 (0.392) 0.010 (0.708)
Political stability no 0.025 (0.000) *** 0.052 (0.000) *** 0.068 (0.000) *** 0.036 (0.004) ***
violence
Regulatory quality 0.005 (0.597) 0.014 (0.576) 0.093 (0.011) ** 0.016 (0.499)
Government effectiveness 0.027 (0.002)*** 0.043 (0.040)** 0.027 (0.001)** 0.031 (0.133)
Voice and accountability 0.000 (0.982) 0.066 (0.000)*** 0.066 (0.003)*** 0.063 (0.000)***
Control variables
Inflation rate (%) 0.001 (0.034)** 0.001 (0.586) 0.001 (0.807) 0.000 (0.695)
GDP per capita growth 0.000 (0.776) 0.007 (0.013) ** 0.005 (0.250) 0.010 (0.000)***
rate (%)
Dummy variable for geographical region
Europe and Central Asia 0.098 (0.000)*** 0.210 (0.000)*** 0.103 (0.181) 0.331 (0.000)***
Middle East and North 0.082 (0.001)*** 0.195 (0.001)*** 0.122 (0.1616) 0.343 (0.000)***
Africa
Sub-Saharan Africa 0.143 (0.000)*** 0.248 (0.000)*** 0.374 (0.000)*** 0.460 (0.000)***
South Asia 0.094 (0.000)*** 0.032 (0.133) 0.133 (0.032)** 0.397 (0.000)***
East Asia and Pacific 0.058 (0.014)** 0.081 (0.148) 0.151 (0.066)* 0.301 (0.000)***
Latin America and 0.095 (0.000)*** 0.095 (0.000)*** 0.327 (0.000)*** 0.418 (0.000)***
Caribbean

Log likelihood 527.452 Log likelihood 233.921 Log likelihood 102.692 Log likelihood 240.064
Prob (LR statistic) 0.000*** Prob (LR statistic) 0.000*** Prob (LR statistic) 0.000*** Prob (LR statistic) 0.000***
Akaike info criterion 3.005 Akaike info criterion 1.283 Akaike info criterion 0.514 Akaike info criterion 1.320
Hannan-Quinn criter 2.938 Hannan-Quinn criter 1.216 Hannan-Quinn criter 0.447 Hannan-Quinn criter 1.252
Schwarz criterion 2.837 Schwarz criterion 1.115 Schwarz criterion 0.345 Schwarz criterion 1.151

Table III.

linear model output

Panel generalized
223
inclusion
Financial
IJDI significant negative effect on borrowing from the financial institution, while a positive
19,2 significant effect on each of saving at a financial institution, debit card and credit card. This
result is supported by Nurdeen Abu and Aziz (2015), who report that lower corruption is
associated with a higher saving rate in the Economic Community of West African States. On
the other hand, Atkins et al. (2015) confirm that timely loan loss provision is associated with
high lending corruption based on data from 3,611 firms across 44 countries. Similar results
224 are reported by Bougatef (2016). Furthermore, Goczek and Witkowski (2016) examine the
determinants of retail card payment for EU countries over the period 2000-2012. Their
results show that control of corruption and public trust in policymaking institutions,
including banks, are important determinants of card payments.
The insignificance of the rule of law can be fairly justified through the definition of the World
Bank to the Rule of Law. The latter refers to the quality of contract enforcement, property rights,
the police and the courts, as well as the likelihood of crime and violence (https://info.worldbank.
org/governance/wgi/Home/Documents). Apparently, these elements are, to a large extent,
irrelevant to financial inclusion, which is voluntary in its basic form and motivation. The
statistical insignificance reflects irrelevancy.
The results also show that political stability has a positive significant effect on the four
measures of financial inclusion. This result is also supported by Herrala and Ariss (2013),
who report that political instability in the Middle East and North Africa region has a
significant effect on tightening borrowing constraints and pulling down capital
accumulation. However, an opposing result is reported by Aaberge et al. (2017) in a sample
of Chinese households that political uncertainty caused a temporary surge in savings among
urban households especially those who are old, wealthy and socially advantaged
households.
The coefficient of government effectiveness has a positive significant effect on
borrowing, saving and debit card ownership. This result conforms to the results reported by
Ajide (2017), Ghazal and Zulkhibri (2017) and Bakari et al. (2018). In the same context, voice
and accountability have a positive significance on saving, debit card and credit card
ownership. In general, Helliwell et al. (2018) emphasize the influence of good governance on
countries’ national well-being.
Regarding the control variables, the results show that GDP per capita growth rate has a
negative significant effect on saving and credit cards. This conforms to the permanent
income hypothesis, which asserts that forward-looking consumers anticipate an increase in
their future income, thus dissave against future earning (Friedman, 1957). On the other
hand, the inflation rate has a significant positive effect on borrowing only.
Regarding the dummy variables for the geographical regions, the results show negative
significant effects across the four models indicating a secular decreasing trend of financial
inclusion across the world economies. Generally, the four models of financial inclusion are
significant in terms of the probability of the likelihood ratio. Nevertheless, Model 3 is the
best model as associated with the minimum information criteria across the four models.

Robustness test
The model is re-estimated with different control dummy variables as proxies for countries’
effects. Dummy variables are used for the different income levels of the countries. Table IV
reports the result of the robust model that supports the previously reported results in Table III,
in which Model 3 is the best model as associated with the minimum information criteria across
the four models. Besides, dummy variables for the income level show negative significant
effects acrossthefour models indicating a secular decreasing trend of financial inclusion across
 (1) Borrowed from a financial institution (% (2) Saved at a financial institution (% (3) Debit card (% age (4) Credit card (% age
Dependent variables age 15þ) age 15þ) 15 þ) 15þ)

Dependent variables
WGIs
Control of corruption 0.017 (0.123) 0.009 (0.670) 0.020 (0.499) 0.025 (0.249)
Rule of law 0.008 (0.501) 0.010 (0.683) 0.054 (0.109) 0.019 (0.420)
Political stability no 0.0237 (0.000)*** 0.014 (0.197) 0.025 (0.087)* 0.007 (0.468)
violence
Regulatory quality 0.004 (0.686) 0.027 (0.217) 0.074 (0.012)** 0.005 (0.782)
Government effectiveness 0.024 (0.017)** 0.046 (0.033)** 0.052 (0.064)* 0.028 (0.167)
Voice and accountability 0.008 (0.177) 0.035 (0.004)*** 0.0240.1400 0.040 (0.000)***
Control variables:
Inflation rate (%) 0.212 (0.000)*** 0.000 (0.942) 0.001 (0.520) 0.002 (0.082)*
GDP per capita growth 0.0000.968 0.0010.662 0.0040.218 0.0030.181
rate (%)
Dummy variable for the geographical region
LOWINCOME 0.054 (0.000)*** 0.562 (0.000)*** 0.303 (0.000)***
LOWERMIDDLE 0.012 (0.288) 0.219 (0.000)*** 0.457 (0.000)*** 0.291 (0.000)
UPPERMIDDLE 0.011 (0.243) 0.199489 (0.000)*** 0.292886 (0.000)*** 0.217 (0.000)***

Log likelihood 507.466 Log likelihood 253.936 Log likelihood 158.323 Log likelihood 273.787
Prob (LR statistic) 0.000000*** Prob (LR statistic) 0.000*** Prob (LR statistic) 0.000*** Prob (LR statistic) 0.000***
Akaike info criterion 2.855 Akaike info criterion 1.394 Akaike info criterion 0.843 Akaike info criterion 1.508
Hannan-Quinn criter. 2.802 Hannan-Quinn criter. 1.341 Hannan-Quinn criter. 0.790 Hannan-Quinn criter. 1.455
Schwarz criterion 2.722 Schwarz criterion 1.261 Schwarz criterion 0.710 Schwarz criterion 1.375

Note: *Significant at 10% level; **significant at 5% level and ***significant at 1% level

Table IV.

model output
generalized linear
225
inclusion
Financial

Robust test-panel
IJDI thedifferentincomelevelsoftheworldeconomies.Yet,controlofcorruptionandGDPpercapita
19,2 werenotsignificantinthefourmodels.

Conclusion and policy recommendation

This paper examines the impact of WGIs on the improvement of financial inclusion across
world economies. The data are obtained from the global database of financial inclusion
226 indicators (global findex) for the years 2011, 2014 and 2017. Four world panel countries’
models are estimated using a fixed generalized linear model for four measures of financial
inclusion; namely, borrowed from a financial institution, Saved at a financial institution,
credit card and debit card ownership. The empirical estimation reveals that control of
corruption, government effectiveness. Political stability and voice and accountability are the
significant WGIs that influence financial inclusion.
Some policy recommendations can be derived from the policymakers to improve programs
of financial inclusion. Government effectiveness can be addressed through relaxing
documentation requirements for opening an account. A bank agent model can be considered as
it mobilizes the existing network of local retailers and other trusted members of the local
community, which is considered cheaper than setting up a physical branch. A government
might initiate correspondent-banking for instance, post-offices. Furthermore, government
electronic payments help increase bank account penetration, especially among rural areas.
Moreover, voice and accountability can be enriched through improving public trust in
banks via widened disclosure and transparency in the banking system. In fact, the
imposition of explicit deposits insurance that pays out to depositors in the case of bank
failures helps increase depositor trust in banks. Nevertheless, financial education in terms of
financial literacy programs should clarify the role of the banking system in the economic
development of any country, thus enhance banks’ accountability among countries’ residents.
The above-mentioned arguments highlight the importance of granting political stability
to ensure trust in the macroeconomic conditions, thereby improve trust in the banking
system. Furthermore, enforcing the rule of law should help in controlling corruption.
Nevertheless, enforced financial inclusion associated with the weak regulatory environment
creates great risk in terms of excessive borrowing and lack of consumer protection
threatening financial stability (Cihak et al., 2016). This argument indicates that well-
established governance is a prerequisite to financial inclusion. In addition, enabling the
global regulatory standards related to dynamic provisions, macro-prudential regulations,
capital adequacy and information disclosure is important to support a safe and broadened
financial inclusion (Sousa, 2015).

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Corresponding author
Tarek Eldomiaty can be contacted at: tarek_eldomiaty@hotmail.com

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