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Recently, it has been argued that financial inclusion contributes to financial stability. This paper assesses the relationship between inclusion and stability in the global financial crisis based on a sample of 75 countries. We find in most specifications that a higher level of financial inclusion has a moderating effect on the credit crunch in the crisis. However, financial inclusion itself is subject to a boom-bust cycle as stronger borrower growth in the pre-crisis period is followed by a deeper drop in borrower growth in the crisis. Finally, rising levels of financial inclusion before the crisis do not enhance stability if the pre-crisis period is characterized by rapid credit growth. Overall, our results provide only limited support for the hypothesis that financial inclusion contributes to financial stability.
Author(s):
Tania Lopez
Frankfurt School of Finance and Management GgmbH
Germany
Adalbert Winkler
Frankfurt School of Finance and Management GgmbH
Germany