Microfinance, financial inclusion and ICT: Implications for poverty and inequality

This study assesses the role of Information and Communication Technologies (ICT) in poverty & inequality reduction by fostering financial inclusion, using panel dataset of sixty-two countries between 2001 and 2012. It mainly focuses on two different dimensions of financial inclusion e.g., inclusion by commercial banks and by microfinance institutions (MFIs). As the formal financial institutions deal with wealthy and well-off clients, whereas the MFIs claim to be the bankers of poor. A large number of poor people are still un-banked in low income countries; however, research in development finance suggests that accessible and timely finance has the potential to bring poor out of poverty. The importance of MFIs in providing credit and other financial services at the doorstep of financially excluded households is globally acknowledged. Thus, it is inevitable to investigate the determinants of (MFIs)/financial inclusion particularly in developing countries. In the first step of data analysis, we find positive association of ICT diffusion with financial inclusion and a negative relationship with poverty & inequality. Furthermore, the results of the study indicate poverty reducing effects of financial inclusion measured either way. It was also observed that the ICT dimensions when used as instruments for financial inclusion accelerate economic growth and reduce poverty & inequality. Therefore, policies to promote information and communication infrastructure could stimulate financial inclusion by promoting digital finance. Moreover, better collaboration between ICT and financial sector will likely to advance digital financial inclusion that could help to bridge the financial infrastructure gap. •This paper examines the role of Information and Communication Technologies (ICT) in poverty reduction by fostering financial inclusion, using panel dataset of 61 countries from 2001 through 2012.•We analyze two different dimensions of financial inclusion i.e, inclusion by commercial banks and by microfinance institutions (MFIs).•We utilize five dimensions of ICT namely, mobile phones, fixed lines, internet, personal computers and price of 3-min local mobile call.•Present study firstly, investigates the impact of financial inclusion by MFIs on poverty and inequality, secondly, the impact of formal financial inclusion is examined.•Most notably, it also explores how ICTs boost financial inclusion and help poverty reduction.•We observe, ICT dimensions when used as instruments