Financial Inclusion, Banking Stability, and Digital Technology Development in ASEAN

Abstract

The purpose of this study is to examine the effect of financial inclusion, supported by digital technology development on income inequality, poverty, and banking stability in ASEAN’s emerging countries. This study employs the Generalized Method of Moment (GMM) and Generalized Least Square (GLS) methodology, using annual data for ten years from 2007 to 2016. The empirical results support the argument. First, digital technology development (usage of the mobile phone) can improve financial inclusion because technology makes it easier to access financial services to people who are difficult to reach. Second, financial inclusion decreases income inequality, but it has no significant effect on reducing poverty. This finding indicates that formal financial services seem to be unable to reach the poor. Finally, the empirical results show that the increasing use of banking services through financial inclusion contributes positively to banking stability. Results of this study could encourage the presence of better policies to reform the financial sector by showing that the expansion in the use of financial services has a direct impact on financial/economic distribution. In addition, the paper provides implication for the banking regulator that the usage of banking and formal financial services still dominated by middle- and high-income society. Furthermore, the synergies between promoting financial inclusion and financial stability can also exist if using the right tools.