Financial Inclusion and Its Impact on Financial Stability: A Case Study of Emerging Market Countries

Abstract

This study aims to analyze whether financial inclusion can identify leading indicators of financial system stability in five emerging market countries. The research subjects include emerging market countries, namely Malaysia, Singapore, Germany, Mexico, and Indonesia, with data spanning from 2003 to 2021. The Panel ARDL (Autoregressive Distributed Lag) method enables the analysis of both short-term and long-term relationships between variables. The data includes financial inclusion indicators, such as credit ratios, savings, ATMs, Bank Z-scores, and NFDI, as well as indicators of financial system stability, measured using Non-Performing Loans (NPL). We also use GDP per capita as a control variable. The results show that financial inclusion acts as a leading indicator of financial system stability, as evidenced by its significant impact on NPLs in each of the countries studied. These findings offer valuable insights into the importance of expanding financial access to enhance financial system stability, particularly in emerging market countries.