Financial Inclusion: Does Cultural Heterogeneity Matter?

ABSTRACT Culture plays an important role in determining the financial inclusion of individuals. However, most studies consider culture as a homogeneous element. In this study, we lift the assumption of cultural homogeneity and look at how intra‐cultural variation, i.e., the population distribution of a characteristic within a culture, affects financial inclusion. We use the World Bank's Global Findex database and show that intra‐cultural variation in individualism values reduces financial inclusion. This reduction can be explained by the fact that a high degree of heterogeneity in the individualism cultural dimension leads to an increase in the informal network within a country and a decrease in trust in banking institutions. Furthermore, we demonstrate that in individualistic countries, the effect of intra‐cultural variation outweighs that of the cultural means. This effect highlights the significance of considering cultural diversity in understanding financial inclusion. Our results are robust to several alternative specifications.