Economics & Sociology

ISSN: 2071-789X eISSN: 2306-3459 DOI: 10.14254/2071-789X
Index PUBMS: f5512f57-a601-11e7-8f0e-080027f4daa0
Article information
Title: Does financial inclusion alleviate household poverty? Empirical evidence from Indonesia
Issue: Vol. 12, No 2, 2019
Published date: 06-2019 (print) / 06-2019 (online)
Journal: Economics & Sociology
ISSN: 2071-789X, eISSN: 2306-3459
Authors: Taufiq Carnegie Dawood
Universitas Syiah Kuala

Hasta Pratama
The Central Statistical Agency of Indonesia (BPS)

Raja Masbar
Universitas Syiah Kuala

Rustam Effendi
Universitas Syiah Kuala
Keywords: financial inclusion, poverty, households, Indonesia, logit model
DOI: 10.14254/2071-789X.2019/12-2/14
Index PUBMS: 192565df-ad4c-11e9-bbfd-fa163e0fa1a0
Language: English
Pages: 235-252 (18)
JEL classification: G20, O10, O16
Website: https://www.economics-sociology.eu/?674,en_does-financial-inclusion-alleviate-household-poverty-empirical-evidence-from-indonesia
Licenses:
Abstract

This study’s contribution to literature is presenting empirical evidence on the impact of financial inclusion, meaning elimination of barriers to accessing financial services, on poverty at the household level in developing countries, using Indonesia as a case study. This is a significant problem for developing countries such as Indonesia, which faces high poverty, even though it has achieved rapid financial development. Using the Binary Logistic (Logit) model and data from approximately 300,000 households from the 2017 Indonesian National Social and Economic Survey (Susenas), this research reveals that financial inclusion decreases households’ probability of absolute poverty. Furthermore, financial inclusion can compensate for a lack of assets, a limited number of non-agriculture occupational opportunities in rural areas, and low education levels of household heads. In addition, financial inclusion has the potential to reduce incentives for poor, low-skilled rural people to migrate to urban areas in search of non-agricultural employment opportunities. Policy recommendations based on the results found are twofold. First, for people who are vulnerable to poverty, financial inclusion should be enhanced, especially for poor women-headed farming households in rural areas. Second, for policy-makers concerned with urbanization of low-skilled poor migrants, enhancing financial inclusion in rural areas is needed to help reduce urbanization pressures.

Bibliography

1. Achia, T. N. O., Wangombe, A., & Khadioli, N. (2010). A Logistic Regression Model to Identify Key Determinants of Poverty Using Demographic and Health Survey Data. European Journal of Social Sciences, 13(1), 38-46.

2. Adjasi, C. K. D., & Osei, K. A. (2007). Poverty Profile and Correlates of Poverty in Ghana. International Journal of Social Economics, 34(7), 449-471. https://doi.org/10.1108/03068290710760236

3. Allen, F., Demirguc-Kunt, A., Klapper, L., & Martinez Peria, M. S. (2016). The Foundations of Financial Inclusion: Understanding Ownership and Use of Formal Accounts. Journal of Financial Intermediation, 27, 1-30. https://doi.org/10.1016/j.jfi.2015.12.003

4. Badan Pusat Statistik. (2017). Survei Sosial Ekonomi Nasional (SUSENAS) Kor, 2017.

5. Bank Indonesia. (2014). Booklet Financial Inclusion. Bank Indonesia. Retrieved from https://www.bi.go.id/id/perbankan/keuanganinklusif/edukasi/Pages/Booklet-Keuangan-Inklusif.aspx

6. Beck, T., & Demirgüç-Kunt, A. (2007). Finance, Inequality and the Poor. Journal of Economic Growth, 12(1), 27-49. https://doi.org/10.1007/s10887-007-9010-6

7. Beck, T., & Demirgüç-Kunt, A. (2008). Access to Finance: An Unfinished Agenda. World Bank Economic Review, 22(3), 383-396. https://doi.org/10.1093/wber/lhn021

8. Boukhatem, J. (2016). Assessing the Direct Effect of Financial Development on Poverty Reduction in a Panel of Low- and middle-income Countries. Research in International Business and Finance, 37, 214-230. https://doi.org/10.1016/j.ribaf.2015.11.008

9. Chibba, M. (2009). Financial Inclusion, Poverty Reduction and the Millennium Development Goals. European Journal of Development Research, 21(2), 213-230. https://doi.org/10.1057/ejdr.2008.17

10. Cojocaru, L., Falaris, E. M., Hoffman, S. D., & Miller, J. B. (2016). Financial System Development and Economic Growth in Transition Economies: New Empirical Evidence from the CEE and CIS Countries. Emerging Markets Finance and Trade, 52(1), 223-236. http

11. Coulombe, H., & McKay, A. (1996). Modeling Determinants of Poverty in Mauritania. World Development, 24(6), 1015-1031.

12. Dartanto, T., & Nurkholis. (2013). The Determinants of Poverty Dynamics in Indonesia : Evidence from Panel Data. Bulletin of Indonesian Economic Studies, 49(1), 61-84. https://doi.org/10.1080/00074918.2013.772939

13. de Silva, I. (2008). Micro-level Determinants of Poverty Reduction in Sri Lanka: A Multivariate Approach. International Journal of Social Economics, 35(3), 140-158. https://doi.org/10.1108/03068290810847833

14. Demirgüç-Kunt, A., & Klapper, L. (2012). Measuring Financial Inclusion: The Global Findex Database. World Bank Policy Research Working Paper, 6025(April), 1-61. https://doi.org/10.1596/978-0-8213-9509-7

15. Deutsch, J., & Silber, J. (2006). The " Fuzzy Set " Approach to Multidimensional Poverty Analysis : Using the Shapley Decomposition to Analyze the Determinants of Poverty in Israel. In Fuzzy Set Approach to Multidimensional Poverty Measurement (pp. 155-17

16. Dhrifi, A. (2015). Financial Development and the “Growth-Inequality-Poverty” Triangle. Journal of the Knowledge Economy, 6(4), 1163-1176. https://doi.org/10.1007/s13132-014-0200-0

17. Didier, T., & Schmukler, S. L. (2013). Financial Development in Latin America and the Caribbean: Stylized Facts and the Road Ahead. World Bank Policy Research Working Paper, (6582). Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2316584

18. Didier, T., & Schmukler, S. L. (2014). Emerging Issues in Financial Development: Lessons From Latin America.

19. Donou-Adonsou, F., & Sylwester, K. (2016). Financial Development and Poverty Reduction in Developing Countries: New Evidence from Banks and Microfinance Institutions. Review of Development Finance, 6(1), 82-90. https://doi.org/10.1016/j.rdf.2016.06.002

20. Dugarova, E., & Gülasan, N. (2017). Global Trends: Challenges and Opportunities in the Implementation of the Sustainable Development Goals.

21. Fagernas, S., & Wallace, L. (2007). Determinants of Poverty in Sierra Leone, 2003. Retrieved from https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/2509.pdf

22. Gavurova, B., Huculova, E., Kubak, M., & Cepel, M. (2017). The State of Students’ Financial Literacy in Selected Slovak Universities and its Relationship. Economics and Sociology, 10(3), 206-219. https://doi.org/10.14254/2071-789X.2017/10-3/15

23. Geda, A., de Jong, N., Kimenyi, M. S., & Mwabu, G. (2005). Determinants of Poverty in Kenya : A Household Level Analysis. Economic Working Papers - Digital Commons, 1-25. https://doi.org/ISSN 0921-0210

24. Grenville, S. (2004). What Sort of Financial Sector Should Indonesia Have? Bulletin of Indonesian Economic Studies, 40(3), 307-327. https://doi.org/10.1080/0007491042000231502

25. Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics (Internatio). Mc Graw-Hill.

26. Imai, K. S., Gaiha, R., & Kang, W. (2010). Vulnerability and Poverty Dynamics in Vietnam. Applied Economics, 43(October 2014), 3603-3618. https://doi.org/10.1080/00036841003670754

27. Jalilian, H., & Kirkpatrick, C. (2002). Financial Development and Poverty Reduction in Developing Countries. International Journal of Finance and Economics, 7(2), 97-108. https://doi.org/10.1002/ijfe.179

28. Jalilian, H., & Kirkpatrick, C. (2005). Does Financial Development Contribute to Poverty Reduction? Journal of Development Studies, 41(4), 636-656. https://doi.org/10.1080/00220380500092754

29. Kiendrebeogo, Y., & Minea, A. (2016). Financial Development and Poverty: Evidence from the CFA Franc Zone. Applied Economics, 48(56), 5421-5436. https://doi.org/10.1080/00036846.2016.1176114

30. Mader, P. (2018). Contesting Financial Inclusion. Development and Change, 49(2), 461-483. https://doi.org/10.1111/dech.12368

31. Majid, M. S. A., Dewi, S., Aliasuddin, & Kassim, S. H. (2017). Does Financial Development Reduce Poverty? Empirical Evidence from Indonesia. Journal of the Knowledge Economy. https://doi.org/10.1007/s13132-017-0509-6

32. Máté, D., Sarihasan, I., Popp, J., & Oláh, J. (2018). The Role of Regional Differences in Immigration : the Case of OECD Countries. Economics and Sociology, 11(3), 190-206. https://doi.org/10.14254/2071-789X.2018/11-3/12

33. Mok, T. Y., Gan, C., & Sanyal, A. (2007). The Determinants of Urban Household Poverty in Malaysia. Journal of Social Sciences, 3(4), 190-196.

34. Mukherjee, S., & Benson, T. (2003). The Determinants of Poverty in Malawi, 1998. World Development, 31(2), 339-358. https://doi.org/10.1016/S0305-750X(02)00191-2

35. Neaime, S., & Gaysset, I. (2018). Financial Inclusion and Stability in MENA: Evidence from Poverty and Inequality. Finance Research Letters, 24(August 2017), 199-220. https://doi.org/10.1016/j.frl.2017.09.007

36. Odhiambo, N. M. (2009). Finance-growth-poverty Nexus in South Africa: A Dynamic Causality Linkage. Journal of Socio-Economics, 38(2), 320-325. https://doi.org/10.1016/j.socec.2008.12.006

37. Otchere, I., Senbet, L., & Simbanegavi, W. (2017). Financial Sector Development in Africa - An Overview. Review of Development Finance, 7(1), 1-5. https://doi.org/10.1016/j.rdf.2017.04.002

38. Park, C.-Y., & Mercado, R. V. (2015). Financial Inclusion , Poverty and Income Inequality in DevelopIng Asia. ADB Economics Working Paper Series, (426), 17.

39. Park, D., & Shin, K. (2017). Economic Growth, Financial Development, and Income Inequality. Emerging Markets Finance and Trade, 53(12), 2794-2825. https://doi.org/10.1080/1540496X.2017.1333958

40. Perez-Moreno, S. (2011). Financial Development and Poverty in Developing Countries: A Causal Analysis. Empirical Economics, 41(1), 57-80. https://doi.org/10.1007/s00181-010-0392-5

41. Pratomo, D. S. (2018). Can Rural-Urban Migrants Escape from Poverty ?: Evidences from Four Indonesian Cities. Economics and Sociology, 11(2), 173-183. https://doi.org/10.14254/2071-789X.2018/11-2/12

42. Sekhampu, T. J. (2013). Determinants of Poverty in a South African Township Determinants of Poverty in a South African Township. Journal of Social Sciences, 34(2), 145-153. https://doi.org/10.1080/09718923.2013.11893126

43. Thompson, A., & McDowell, D. R. (1994). The Determinants of Poverty Among Workers in Metro and Nonmetro Areas of the South. The Review of Black Political Economy, 22(4), 159-177.

44. Todaro, M., & Smith, S. (2012). Economic Development. Pearson Addision Wesley. https://doi.org/10.1177/089124240001400105

45. Uddin, G. S., Shahbaz, M., Arouri, M., & Teulon, F. (2014). Financial Development and Poverty Reduction Nexus: A Cointegration and Causality Analysis in Bangladesh. Economic Modelling, 36, 405-412. https://doi.org/10.1016/j.econmod.2013.09.049

46. United Nations. Sustainable Development Goals (2016).

47. World Bank Group. (2016). Taking on Inequality. Poverty and Shared Prosperity 2016: Taking on Inequality, (October), 193. https://doi.org/10.1596/978-1-4648-0958-3

48. Yusuf, A. A., & Sumner, A. (2017). Poverty, Inequality, and Structural Change in Indonesia.