Financial Inclusion and Bank Profitability: Evidence from Indonesia

Rakotoarisoa Maminaina Heritiana Sedera, Tastaftiyan Risfandy, Inas Nurfadia Futri

Abstract


Research aims: This study attempts to investigate the effect of financial inclusion on bank profitability in the Indonesian context.
Design/Methodology/Approach: The sample of this study consisted of 93 commercial banks in Indonesia between 2015 and 2020. The researchers used panel data regression with a fixed effects approach to investigate the nexus between financial inclusion and bank profitability.
Research findings: It was found that financial inclusion positively affected bank profitability in three different dimensions of financial inclusion: access, availability, and usage.
Theoretical contribution/Originality: Most of the previous papers have investigated the impact of financial inclusion on the national levels, such as how financial inclusion affects economic growth. Meanwhile, this paper examines the impact of financial inclusion on bank-level profitability, an issue relatively unexplored in the literature, particularly in Indonesia. The use of three dimensions of financial inclusion in the context of a developing economy is also the novelty of this article.
Practitioner/Policy implication: The result of this study can also assist policymakers, such as the central bank of Indonesia, in designing better strategies and regulations to achieve higher financial inclusion and boost the economy's development.
Research limitation/Implication: The result of this paper might only be applied to Indonesia’s specific setting or developing countries.


Keywords


Financial Inclusion; Bank Profitability; Commercial Bank, Emerging Economy, Indonesia

Full Text:

PDF

References


Ahamed, M. M., & Mallick, S. K. (2019). Is financial inclusion good for bank stability? International evidence. Journal of Economic Behavior and Organization, 157, 403–427. https://doi.org/10.1016/j.jebo.2017.07.027

Ahamed, M. M., Ho, S. J., Mallick, S. K., & Matousek, R. (2021). Inclusive banking, financial regulation and bank performance: Cross-country evidence. Journal of Banking and Finance, 124, 106055. https://doi.org/10.1016/j.jbankfin.2021.106055

Al-Eitan, G. N., Al-Own, B., & Bani-Khalid, T. (2022). Financial Inclusion Indicators Affect Profitability of Jordanian Commercial Banks: Panel Data Analysis. Economies, 10(2), 38. https://doi.org/10.3390/economies10020038

Allen, F., Demirguc-Kunt, A., Klapper, L., & Peria, M. S. M. (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

Andreou, P. C., & Anyfantaki, S. (2021). Financial literacy and its influence on internet banking behavior. European Management Journal., 39(5), 658-674. https://doi.org/10.1016/j.emj.2020.12.001

Banna, H., Hassan, M. K., & Rashid, M. (2021). Fintech-based financial inclusion and bank risk-taking: Evidence from OIC countries. Journal of International Financial Markets, Institutions and Money, 75, 101447. https://doi.org/10.1016/j.intfin.2021.101447

Baselga-pascual, L., & Emilia, V. (2021). Female leadership and bank performance in Latin America. Emerging Markets Review, 48, 100807. https://doi.org/10.1016/j.ememar.2021.100807

Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2005). Financial and legal constraints to growth: Does firm size matter? Journal of Finance, 60(1), 137–177. https://doi.org/10.1111/j.1540-6261.2005.00727.x

Bernini, C., & Brighi, P. (2018). Bank branches expansion, efficiency and local economic growth. Regional Studies, 52(10), 1332–1345. https://doi.org/10.1080/00343404.2017.1380304

Bitar, M., Pukthuanthong, K., & Walker, T. (2020). Efficiency in Islamic vs. conventional banking: The role of capital and liquidity. Global Finance Journal, 46, 100487. https://doi.org/10.1016/j.gfj.2019.100487

Chen, W-D., Chen, Y., & Huang, S-C. (2021). Liquidity risk and bank performance during financial crises. Journal of Financial Stability, 56, 100906. https://doi.org/10.1016/j.jfs.2021.100906

Choi, H. S. (2019). Money, debit card, gross-settlement risk, and central banking. The North American Journal of Economics and Finance, 50, 100993. https://doi.org/10.1016/j.najef.2019.100993

Datta, S. K., & Singh, K. (2019). Variation and determinants of financial inclusion and their association with human development: A cross-country analysis. IIMB Management Review, 31(4), 336–349. https://doi.org/10.1016/j.iimb.2019.07.013

David, B., Abel, F., & Patrick, W. (2016). Debit card and demand for cash. Journal of Banking & Finance, 73, 55–66. https://doi.org/10.1016/j.jbankfin.2016.08.009

Dwumfour, R. A. (2017). Explaining banking stability in Sub-Saharan Africa. Research in International Business and Finance, 41, 260–279. https://doi.org/10.1016/j.ribaf.2017.04.027

Erlando, A., Riyanto, F. D., & Masakazu, S. (2020). Financial inclusion, economic growth, and poverty alleviation: evidence from eastern Indonesia. Heliyon, 6(10), e05235. https://doi.org/10.1016/j.heliyon.2020.e05235

Frame, S., & White, L. J. (2012). Technological Change, Financial Innovation, and Diffusion in Banking. The Oxford Handbook of Banking, 1–37. https://doi.org/10.1093/oxfordhb/9780199640935.013.0019

Hanivan, H., & Nasrudin, N. (2019). A financial inclusion index for Indonesia. Buletin Ekonomi Moneter dan Perbankan, 22(3), 351-366. https://doi.org/10.21098/bemp.v22i3.1056

Iqbal, B. A., & Sami, S. (2017). Role of banks in financial inclusion in India. Contaduría y Administración, 62(2), 644–656. https://doi.org/10.1016/j.cya.2017.01.007

Issaka Jajah, Y., Anarfo, E. B., & Aveh, F. K. (2020). Financial inclusion and bank profitability in Sub-Saharan Africa. International Journal of Finance & Economics, 27(1), 32-44. https://doi.org/10.1002/ijfe.2135

Izzeldin, M., Johnes, J., Ongena, S., Pappas, V., & Tsionas, M. (2021). Efficiency convergence in Islamic and conventional banks. Journal of International Financial Markets, Institutions and Money, 70, 101279. https://doi.org/10.1016/j.intfin.2020.101279

Jayasekara, S. D. (2021). Deficient regimes of anti-money laundering and countering the financing of terrorism: agenda of digital banking and financial inclusion. Journal of Money Laundering Control, 24 (1), 150-162. https://doi.org/10.1108/JMLC-04-2020-0035

Kanungo, R. P., & Gupta, S. (2021). Financial inclusion through digitalisation of services for well-being. Technological Forecasting and Social Change, 167, 120721. https://doi.org/10.1016/j.techfore.2021.120721

Khmous, D. F., & Besim, M. (2020). Impact of Islamic banking share on financial inclusion: evidence from MENA. International Journal of Islamic and Middle Eastern Finance and Management, 13(4), 655–673. https://doi.org/10.1108/IMEFM-07-2019-0279

Kondo, K. (2010). Do ATMs influence bank profitability in Japan?. Applied Economics Letters, 17 (3), 297–303. http://dx.doi.org/10.1080/13504850701720379

Kumar, V., Thrikawala, S., & Acharya, S. (2022). Financial inclusion and bank profitability: Evidence from a developed market. Global Finance Journal, 53, 100609. https://doi.org/10.1016/j.gfj.2021.100609

Lal, T. (2018). Impact of financial inclusion on poverty alleviation through cooperative banks. International Journal of Social Economics, 45(5), 808–828. https://doi.org/10.1108/IJSE-05-2017-0194

Mehrotra, A. and Yetman, J. (2015). Financial inclusion – issues for central banks, BIS Quarterly Review, 5, 83–96. Retrieved from https://www.bis.org/publ/qtrpdf/r_qt1503h.pdf

Mirzaei, A., Moore, T., & Liu, G. (2013). Does market structure matter on banks’ profitability and stability? Emerging vs. advanced economies. Journal of Banking and Finance, 37(8), 2920–2937. https://doi.org/10.1016/j.jbankfin.2013.04.031

Ongo Nkoa, B. E., & Song, J. S. (2020). Does institutional quality affect financial inclusion in Africa? A panel data analysis. Economic Systems, 44(4), 100836. https://doi.org/10.1016/j.ecosys.2020.100836

Owen, A. L., & Pereira, J. M. (2018). Bank concentration, competition, and financial inclusion. Review of Development Finance, 8(1), 1–17. https://doi.org/10.1016/j.rdf.2018.05.001

Ozili, P. K. (2020). Social inclusion and financial inclusion: international evidence. International Journal of Development Issues, 19(2), 169–186. https://doi.org/10.1108/IJDI-07-2019-0122

Oz-Yalaman, G. (2019). Financial inclusion and tax revenue. Central Bank Review, 19(3), 107–113. https://doi.org/10.1016/j.cbrev.2019.08.004

Ramzan, M., Amin, M., & Abbas, M. (2021). How does corporate social responsibility affect financial performance, financial stability, and financial inclusion in the banking sector? Evidence from Pakistan. Research in International Business and Finance, 55, 101314. https://doi.org/10.1016/j.ribaf.2020.101314

Risfandy, T. (2018). Equity Financing and Islamic Banks’ Profitability: Evidence from the Biggest Muslim Country. Jurnal Keuangan dan Perbankan, 22(3), 496–505. https://doi.org/10.26905/jkdp.v22i3.2150

Risfandy, T., Tarazi, A., & Trinugroho, I. (2022). Competition in dual markets: Implications for banking system stability. Global Finance Journal, 57, 100579. https://doi.org/10.1016/j.gfj.2020.100579

Shihadeh, F. H., Hannon, A.(.T.)., Guan, J., Haq, I.u., & Wang, X. (2018). Does Financial Inclusion Improve the Banks’ Performance? Evidence from Jordan", Kensinger, J.W. (Ed.) Global Tensions in Financial Markets (Research in Finance, 34), Emerald Publishing Limited, Bingley, 117-138. https://doi.org/10.1108/S0196-382120170000034005

Shihadeh, F., & Liu, B. (2019). Does financial inclusion influence the banks risk and performance? Evidence from global prospects. Academy of Accounting and Financial Studies Journal, 23(3). Retrieved from https://www.abacademies.org/abstract/does-financial-inclusion-influence-the-banks-risk-and-performance-evidence-from-global-prospects-8284.html

Sik, Y., & Lee, M. (2010). Journal of Economic Dynamics & Control A model of debit card as a means of payment. Journal of Economic Dynamics and Control, 34(8), 1359–1368. https://doi.org/10.1016/j.jedc.2010.03.003

Wang, R., & Luo, H. (Robin). (2022). How does financial inclusion affect bank stability in emerging economies? Emerging Markets Review, 51, 100876. https://doi.org/10.1016/j.ememar.2021.100876

Wooldridge, J. M. (2016). Introductory Econometrics: A Modern Approach. Cengage Learning. Boston, MA.

Zins, A., & Weill, L. (2016). The determinants of financial inclusion in Africa. Review of Development Finance, 6(1), 46–57. https://doi.org/10.1016/j.rdf.2016.05.001




DOI: https://doi.org/10.18196/jai.v23i3.14721

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Office:
Ruang Jurnal Fakultas Ekonomi dan Bisnis UMY
Gedung Ki Bagus Hadikusuma (E4) Lantai 2, Kampus Terpadu Universitas Muhammadiyah Yogyakarta,
Jalan Brawijaya (Lingkar Selatan), Tamantirto, Kasihan, Bantul, Daerah Istimewa Yogyakarta, Indonesia, 55183
Website: journal.umy.ac.id/index.php/ai - E-mail: jai@umy.ac.id

Journal of Accounting and Investment is licensed under Creative Commons Attribution Attribution-NonCommercial-NoDerivatives 4.0 International License

View My Stats