How does financial performance affect financial inclusion for developing countries?

Abstract

This study aims to detect the relationship between financial inclusion and financial performance in the banking sector. Within this scope, firstly, we develop an index for financial inclusion which consists of various dimensions for 85 developing countries in the 2005–2017 time period. Then, we apply static and dynamic panel data analyses. Static panel data analysis findings indicate that financial performance indicators such as bank return on assets, bank return on equity, and bank net interest margin positively affect and bank lending-deposit spread negatively affects financial inclusion, but bank non-interest income to total income has a statistically insignificant coefficient. Also, as a robustness analysis, dynamic panel data analysis provides evidence that financial performance is important for financial inclusion. According to our findings, we can say that the increase in the profitability of the banking sector is one of the triggers of financial inclusion for developing countries.