Determinants of financial inclusion: does culture matter?

Abstract

This study aims to assess the role of culture as a determinant of financial inclusion, defined with respect to formal account ownership, saving and credit in/from formal financial institutions. A sample of 85 countries, comprising 50 developing and 35 developed countries from the World Bank’s Global Findex database is used to perform probit estimations. Hofstede’s cultural dimensions, namely power distance, individualism/collectivism, masculinity/femininity, uncertainty avoidance, short/long-term orientation, and indulgence/restraint are used as culture measures. Our findings indicate that living in high power distance, more masculine, and high uncertainty avoidance cultures reduces the likelihood for financial inclusion. Meanwhile, living in more individualistic, long-term oriented, and more indulgent cultures increases the likelihood for financial inclusion. These findings are relevant for the design of policies to foster financial inclusion across the developing world, especially as financial inclusion affects poverty levels and reduction strategies, and economic development as a whole. We provide evidence which dismisses the global “one size fits all” strategy applied to development-related initiatives like the global provision of funds towards financial inclusion, and argue for a more customised approach given country-level differences conditioned by different cultural frameworks.

Keywords:

• credit
• culture
• financial inclusion
• Hofstede
• (In)formal institutions
• saving

PUBLIC INTEREST STATEMENT

Across the world, public and private actors have financed initiatives aimed at expanding access to, and use of formal financial services like saving, credit, and insurance, otherwise dubbed financial inclusion. Based on past research, better access to financial services is beneficial for households and society as a whole. Notable differences have been observed at regional and country levels on financial inclusion measures like access to, and use of financial services like saving an credit. Macroeconomic differences between countries have largely been held accountable for these financial inclusion differences. In our study, we hypothesize that culture has a key role to play. We test this hypothesis using a global sample of 85 countries. Our findings indicate that culture does determine financial inclusion, with people in some cultures more likely to access and use financial serices than people in others.

Acknowledgements

In accordance with Taylor & Francis policy and my ethical obligation as a researcher, I hereby report that neither my collaborative authors nor I received any funding for this research. We additionally do not represent any organisation which will benefit unduly from the findings of this research. No conflicts of interest are thus likely to arise from this submission.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Global Findex 2017, https://datacatalog.worldbank.org/dataset/global-financial-inclusion-global-findex-database

2. CGAP Brief available at https://openknowledge.worldbank.org/handle/10986/30111

3. https://www.hofstede-insights.com/country-comparison

4. Global Findex 2017 Questionnaire, https://globalfindex.worldbank.org/sites/globalfindex/files/databank/2017%20Findex%20questionnaire.pdf

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Tony Anyangwe

Tony Anyangwe is a finance consultant and lecturer in Cameroon. He holds a PhD in Development Finance from Stellenbosch University, South Africa. Prior to engaging in research, he worked as a corporate banker in Cameroon. His research interests include institutions and development, financial market integration, and SME/digital finance.

Annabel Vanroose

Annabel Vanroose is part time associate professor at Université libre de Bruxelles and full time policy advisor. Before, she worked as associate professor at Stellenbosch Business School, South Africa and Universidad de Piura in Peru. She obtained her PhD from the Vrije Universiteit Brussel and Université libre de Bruxelles, Belgium.

Ashenafi Fanta

Ashenafi Fanta is a Senior Lecturer of Development Finance at Stellenbosch Business School. Prior to this, he worked as Data Analysis and Segmentation Expert at FinMark Trust. His research interests include financial development, SME finance, financial inclusion, and corporate governance of financial institutions.

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