Introduction
Asian economies are at different levels of economic and financial sector development. While Japan, Singapore, and the Republic of Korea belong to the high-income Organisation for Economic Co-operation and Development (OECD) group of countries, on the other end of the wide spectrum are low-income countries that include Cambodia, Nepal, and Bangladesh. Within the middle-income countries of Asia, there are countries such as Malaysia and the Maldives that are far better off than Pakistan and India. The various stages of economic development are also reflected in the diverse stages of financial sector development in these economies. While the literature on economic development has adequately discussed the link between financial sector development and economic development,1 there has not been much discussion of whether financial development implies financial inclusion. Financial inclusion can be defined as a process that ensures the ease of access, availability, and usage of the formal financial system for all members of an economy. It has been observed that even ‘well-developed’ financial systems have not succeeded in being ‘all-inclusive’, and certain segments of the population remain outside the formal financial systems.2
An understanding of the issues surrounding inter-linkages between financial inclusion, financial development, and economic growth requires an appropriate measure of financial inclusion. In other words, measuring is the first step towards understanding financial inclusion. In this chapter, we use an index of financial inclusion (IFI), discussed in detail in Sarma (2012, 2015), to measure the level of financial inclusion for several Asian economies. We use the United Nations Development Programme (UNDP) definition of Asia here.3 We compute IFI for as many Asian countries as possible for the years 2004–2013, subject to the availability of relevant data. Our results show that countries of the Asian region are at different levels of financial inclusion. While Japan, the Republic of Korea, Malaysia, Turkey, and Brunei Darussalam have achieved a high level of financial inclusion, countries such as Afghanistan, Myanmar, Syria, and Yemen display abysmal levels of financial inclusion, as indicated by their extremely low IFI values. On average, Asian countries as a whole displayed a medium level of financial inclusion for 2013, the latest year for which data are available. If we group these Asian countries into eastern, western, central, and southern regions, we find that eastern Asia is more financially inclusive than other regions, while financial inclusion is the least in South Asia vis-à-vis others. These measures not only provide us with a snapshot of the status of financial inclusion in the countries of these regions, they also serve as important quantitative tools to compare the status across economies and over time. These measures of financial inclusion can further be used for empirical research on interesting issues on financial inclusion. In this chapter, our focus is mainly to quantify the level of financial inclusion in the countries under consideration. In doing so, we discuss some conceptual issues involved in measuring financial inclusion and defining the IFI. While we do not delve in a rigorous empirical analysis of what makes some countries more financially inclusive than others, we provide a brief statistical analysis of the levels of financial inclusion and some variables related to the banking structures in these countries.
Th...