Financial Inclusion and Monetary Policy in Emerging Asia

Abstract

The degree of financial inclusion has important implications for firms and households in many emerging and developing economies. Without access to formal financial institutions, and with relatively underdeveloped capital markets, firms may need to rely on retained earnings, or informal sources of funding for investment. Similarly, households may need to use their savings, or borrow from informal sources at exorbitant interest rates, to invest in human capital or start up small businesses. This underscores the importance of access to finance for economic growth and the promotion of income equality (e.g., Beck et al. 2007; Burgess and Pande 2005). Indeed, financial inclusion has been suggested to be “a tool for addressing critical issues of persistent poverty and underdevelopment” (Alliance for Financial Inclusion 2012, p. 6).