Financial Inclusion and Human Capital in Developing Asia: the Australian connection

Abstract

The Australian government as part of its aid programme allocates large funds to improve financial inclusion in developing countries. However, this does not take into account low educational levels in these countries. The existing literature on financial inclusion also treats the issue as mainly supply-centric and does not take cognisance of the fact that poor human development and high illiteracy levels in developing economies may prevent a large section of the population from benefitting from financial inclusion efforts, because of low awareness and comprehension of the financial services available. This study uses a detailed three-stage methodological approach to examine the relationship between financial development and human capital in 21 countries of developing Asia. The results show that a significant negative relationship exists between financial development proxied by M2/gdp and pupil:teacher ratios and a strong positive relationship exists between physical access to banks and expected years of schooling. Further, our financial development and educational development indices also show no clear pattern in the selected countries' financial and educational development.

Notes

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