Robin Newnham, Head, Policy Analysis & Guidance, AFI; Mariam Zahari, Policy Specialist, AFI; Shamim Diouman, Senior Financial Sector Expert

“Does financial inclusion make us lose focus on our primary mandate of monetary and financial stability? I do not think so. It actually enhances it,” said Dr. Zeti Akhtar Aziz, longtime Governor of Bank Negara Malaysia, in 2016. In the decade since, evidence has emerged which backs up that view. And as financial inclusion has expanded worldwide, the question is no longer whether inclusion and stability are compatible, but whether regulators have the tools and frameworks to manage both together.

In recent years, research has shed light on the relationship between financial inclusion and financial stability. A 2019 study covering more than 2,600 banks in 86 countries found that financial inclusion reduced risk at the individual bank level, as broader retail deposit bases lowered funding costs and strengthened resilience. More recently, joint University of Luxembourg and AFI research, drawing on data from 162 economies between 2011 and 2024, found that rising account ownership is associated with more digital, less staff-intensive banking models, and with a more resilient financial system overall.

Financial stability, meanwhile, is widely seen as the foundation on which inclusive finance strategies are built. But the complementarity between inclusion and stability should not be treated as automatic. The two reinforce each other only when policymakers actively align them through coordination, policy design and implementation.  

To date, the relationship between financial inclusion and prudential policy has been somewhat more visible at the microprudential level, which focuses on the health of individual financial institutions. Rules such as minimum capital requirements shape how much risk a bank can take, and influence lending portfolios. An institution’s approach to financial inclusion can in turn affect core indicators of prudential health, including the stability of its deposit base, diversification of its liabilities, and levels of non-performing loans. But even here, financial inclusion considerations tend to surface in post-implementation assessments of unintended consequences rather than being integrated into policy design from the outset.

If the connection is still emerging at the microprudential level, it is even less developed in macroprudential policy, which is concerned with system-wide rather than institution-level risks. The 2008 global financial crisis revealed that a financial system can be dangerously fragile even when individual institutions appear sound, because risks may be building across the system unnoticed. Yet while 2008 forced regulators to rethink financial stability from a macroprudential standpoint, financial inclusion was largely not taken into account.

In part, this is because financial stability and financial inclusion mandates are often housed in separate institutional siloes, with few mechanisms to connect them. This reflects the common positioning of financial inclusion as primarily a development objective. As a result, macroprudential decisions are typically made without assessing their impact on inclusion, while financial inclusion policies are often developed without analysis of system-wide risk.

The consequences run both ways. Rapid expansion of financial inclusion, especially when driven by credit growth or by new market entrants, can create vulnerabilities that macroprudential frameworks may not fully detect. That can leave regulators with ‘blind spots’ in their view of system-wide risk.

The reverse risk is less well understood, but some studies suggest macroprudential tools designed to curb excessive credit growth and leverage may also inadvertently slow or reverse inclusion gains. For example, they may push individuals or small businesses with thin credit files or little collateral out of formal finance, and back toward costly informal lending.

AFI’s Inclusive Financial Stability Toolkit, developed by the Global Standards Proportionality Working Group (GSPWG), responds to this knowledge gap. Offering practical guidance for policymakers seeking to align macroprudential and financial inclusion objectives, it highlights as priorities:

• Integrating financial inclusion into macroprudential policymaking, as in Bank Indonesia’s macroprudential mandate, which explicitly brings together financial inclusion, sustainable finance, systemic risk management and microprudential supervision.

• Addressing data blind spots. This means incorporating quantitative and qualitative financial inclusion data, including MSME and household borrowing and deposit patterns, into systemic risk monitoring, while assessing how macroprudential tools affect financial inclusion outcomes.

• Building a comprehensive and public-facing financial stability framework. Financial inclusion should be a core component of that framework, which must be treated as a living document. The Bangko Sentral ng Pilipinas offers a useful model through its Office of Systemic Risk Management, which publishes crisis playbooks and maintains a dedicated public portal.

The toolkit does not have all the answers. The links between financial inclusion and macroprudential policy remain underexplored and deserve more sustained attention from both researchers and policymakers.

Standard setting bodies, meanwhile, could do more to reflect financial inclusion in their macroprudential guidance, treating it as part of system resilience rather than as a separate policy silo. At the national level, risk-based supervisory approaches have an important role to play, enabling supervisors to calibrate oversight to risk profiles and ensure that supervisory practice supports financial inclusion objectives. Development partners and international financial institutions can assist central banks seeking to build macro-financial models incorporating financial inclusion data.

The 2008 crisis showed that financial stability depends on studying the system as a whole, not just the soundness of its individual parts. This lesson will be vital not only to prevent another domino effect across the global economy, but also to protect low-income households and small enterprises that formal safety nets often fail to reach. Equally, growing evidence suggests that financial systems are healthier when they serve a broad and diverse population. An ‘Inclusive Financial Stability’ approach recognizes this complementarity, applying it as a design principle for resilient financial systems.