New AFI/University of Luxembourg research has found that financial inclusion has a neutral net effect on stability, and serves to strengthen, rather than destabilize, financial systems. 

Professors Michael Halling, Julia Sinnig, and Dirk Zetzsche from the University of Luxembourg analyzed data from 162 economies over 15 years. They found that financial inclusion drives the development of stronger, more profitable, and more capable financial systems.  

The research reveals that while an increase in financial inclusion generates increased credit risk via a rise in non-performing loans, financial institutions are effectively compensating for this through adequate provisions and stronger capital buffers. 

It also finds that increased account ownership is associated with higher total assets, greater profitability, lower dependence on foreign capital, and patterns consistent with a shift towards more digital, less staff-intensive operating models. 

Banco Central del Paraguay, the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), the National Bank of Cambodia, the National Bank of Rwanda and the Palestine Monetary Authority were among the AFI members who contributed insight to the study, which forms part of a multi-year collaborative project between AFI and the University of Luxembourg. 

A new AFI Policy Brief, Financial Inclusion as a ‘Fitness Program’ for Financial Systems, summarizes the research findings.