The Importance of Social Capital in Promoting Financial Inclusion: An International Perspective

Abstract

This paper quantitatively explores the significance of social capital in enhancing internationa financial inclusion, with a specific focus on its usage dimension, represented by formal credit coverage Through panel FGLS (Feasible Generalized Least Squares) and PCSE (Panel Corrected Standard Errors) analysis of a sample comprised of 24 countries for the period 2006 - 2021 and utilizing data obtained from diverse sources, it demonstrates that a country’s credit coverage is influenced by both informal and formal social capital while controlling by factors such as access channels to financial products, measures to address asymmetric information and educational levels. The results underscore that, while financia inclusion is promoted through internationally accepted standards, its effectiveness is closely intertwined with the social context of implementation. Furthermore, formal institutions play a crucial role in shaping financial inclusion by fostering innovation, entrepreneurship, and technological advancement, while attitudes to risk and planning time horizons also significantly impact this dynamic. Notably, nations embracing a pragmatic outlook tend to have more viable access to bank loans, whereas risk aversion impedes economic actors’ propensity to engage in credit agreements, even when accessible.