Financial Inclusion and Economic Growth: Evidence from SAARC countries

In order to improve the calibre, scope, and effectiveness of financial intermediary services and consequently support the larger financial development process, financial inclusion (FI) is essential. This study assesses the level of financial inclusion in SAARC countries and looks at how it affects economic growth in these nations. Twelve variables are included in the analysis, including four control variables (government spending, trade, investment, and consumption expenditure) and eight banking indicators. According to the research, over 27% of people in SAARC nations do not have access to standard financial services, meaning that a sizable section of the population is still unbanked. There are just 66 borrowers for every 1,000 adults, which indicates a very low banking penetration rate. Afghanistan, Bangladesh, Nepal, Pakistan, and Sri Lanka all have developing but relatively low levels of financial inclusion (FI), while the Maldives, India, and Bhutan are the SAARC countries with the highest levels. The findings highlight the importance of financial inclusion in promoting economic growth by showing that seven of the twelve indicators are positively and statistically significant. The study comes to the conclusion that SAARC countries' economic growth is positively impacted by financial inclusion. Direct benefit transfers (DBT) are one example of a policy intervention that could improve banking access for underbanked people, especially vulnerable ones, and encourage inclusive economic growth. Additionally, FI's ability to lessen income inequality and promote sustainable economic growth is demonstrated by the good correlation it has with South Asia's economic growth. JEL Classification: G21, G23, G28, O16.