The Non-Linear Effects of Financial Inclusion on Financial Stability: A Case Study of Selected Countries in the MENA Region

Document Type : Original Article

Authors

1 PhD Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran

2 Associate Professor of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran

3 Assistant Professor of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran

10.48308/jem.2024.234842.1899

Abstract

The undeniable role of banks in pooling and allocating financial resources is possible and sustainable when banks have financial stability; especially when they face financial crises. One of the important and influencing factors on financial stability is the measure of financial inclusion. Previous studies focus more on the positive economic consequences of financial inclusion development and leave its potential negative impact. The main question in this research is whether the development of financial inclusion undermines financial stability or not. For this purpose, the data of 11 selected countries of MENA region during the period from 2001 to 2022 were used by panel data method. The research results support the existence of an inverted U-shaped relationship between financial inclusion and financial stability. It was also observed that financial regulations had a moderating effect on the relationship between financial inclusion and financial stability. Based on these results, it is recommended that monetary and financial policymakers in the countries under review try to reach a proportionate level of financial inclusion and, while increasing financial stability, play a role in predicting financial crises.

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