Abstract
The present study explores the factors that influence financial inclusion in Bangladesh. A time series data set has been constructed by compiling thirty-two years of world development indicators from 1991 to 2022. The Least Squares method was applied, followed by an Autoregressive Distributed Lag (ARDL) model. The investigation finds that macroeconomic and bank-specific factors influence financial inclusion. The study initially considers the number of borrowers (BROW) as the proxy of financial inclusion. BROW was replaced with the number of branches (BRNC) to make the study robust. Both the proxies of financial inclusion provide results that suggest robustness. (The key variables examined include lending interest rates (LIR), GDP growth (GDPg), government expenditure on expenditure (GEOE), inflation (INF), bank lending (LOAN), non-performing loan ratios (NPLR), interest rate spreads (SPRD), and unemployment rates (UNEM). Significant findings reveal that lending interest rates negatively impact the number of borrowers (BORW); on the contrary, GDP growth positively affects the number of borrowers. A noteworthy discovery is the significant negative impact of non-performing loan ratios on the number of borrowers, suggesting that higher bad loans reduce overall lending activity due to increased caution among financial institutions. Additionally, the spread between lending and deposit rates positively influences the number of borrowers, reflecting that higher spreads may incentivize banks to lend more due to greater profitability margins. The study highlights the importance of macroeconomic stability and adequate financial sector management in promoting financial inclusion through increased borrowing. Policymakers should consider these outcomes to develop policies that balance the interest rates, manage economic growth, and control non-performing loans toward fostering a robust borrowing environment. Understanding these dynamics can help formulate strategies that enhance Bangladesh's financial inclusion and economic development.
JEL Classification: G20; G41
Note: The researchers confirm that there is no conflict of interest and that the research paper is for scientific purposes only.