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The topic of access to finance and financial inclusion has been of growing interest throughout the world, particularly in emerging and developing economies. Policymakers are increasingly concerned that the benefits produced by financial intermediation and markets are not being spread widely enough throughout the population and across economic sectors, with potential negative impacts on growth, income distribution and poverty levels, among others. Furthermore, they may also be concerned with the potential negative consequences for macro stability when financial system assets are concentrated in relatively few individuals, firms, or sectors.
Financial inclusion is the use of financial services by individuals and firms. Financial inclusion allows individuals and firms to take advantage of business opportunities, invest in education, save for retirement, and insure against risks (Demirgüç-Kunt, Beck, and Honohan 2008).
It is important to distinguish between the use of and access to financial services. Actual use is easier to observe empirically. Some individuals and firms may have access to but choose not to use some financial products. Some may have indirect access, such as using somebody else’s bank account, or are already using a close substitute. Others may not use financial services because they do not need them or because of cultural or religious reasons. The nonusers include individuals who prefer to deal in cash and firms without promising investment projects. From a policy makers’ viewpoint, nonusers do not constitute an issue since their non-use is driven by lack of demand. However, financial literacy can still improve awareness and generate demand; and non-use for example due to religious reasons can be overcome by allowing entry of financial institutions that offer Sharia-compliant financial products.
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