XXV Edition

1-2 December 2016"

The Nexus of Financial Inclusion and Financial Stability: a Study of Tradeoffs and Synergies

Čihák Martin , International Monetary Fund
Mare Davide, University of Edinburgh
Melecky Martin , World Bank

Policymakers and regulators have devoted much effort to reforms aimed at improving financial stability in response to lessons from the 2007–2009 crisis. At the same time, much effort has also been directed into promoting greater financial inclusion as an enabler of equal opportunity. To some extent, these endeavors have been exerted in silos, neglecting the possibility that financial inclusion and financial stability could be significantly intertwined, positively or negatively. If there are synergies or tradeoffs between inclusion and stability, policy decisions must be informed, and the policy setting, design, and implementation adjusted accordingly. This paper (i) discusses the relationship between financial inclusion and stability, (ii) illustrates empirically interactions between the two financial sector outcomes, and (iii) outlines policy challenges stemming from these interactions.

Area: Financial Stability

Keywords: Financial Inclusion; Financial Stability; Policy Tradeoffs and Synergies; Cross-country Data Analysis; Advanced, Emerging, and Developing Countries.

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