Financial inclusion, vulnerability coping strategies and multidimensional poverty: Does conceptualisation of financial inclusion matter?

Abstract

AbstractPolicy emphasis on financial inclusion and deepening has shifted away from measures capturing formal financial services only and towards the development of more inclusive financial markets which account for both formal and informal services. This study examines the effect of financial inclusion and vulnerability coping strategies on multidimensional poverty, where the conceptualisation of financial inclusion is based on four perspectives—(i) one that focuses on only the formal financial sector, (ii) another that concentrates on only the informal financial sector, (iii) one that considers only the mobile money sector and (iv) finally, one that combines all financial markets (i.e., formal and informal including mobile money). Findings show that the conceptualisation of financial inclusion does not only matter in identifying the financially included but also has an implication on how financial inclusion influences multidimensional poverty. Financial inclusion measures that use only formal financial products and services understate their potential effects on multidimensional poverty, thus, justifying the need for a financial inclusion measure that considers both formal and informal sectors. Incorporating informal financial products and services in the measure reduces multidimensional poverty more for female‐headed households and those in rural settings. Households' adoption of vulnerability coping strategies has the potential to reduce the likelihood of being multidimensionally poor.