Financial inclusion in MENA: Critical pathways for equitable access

The analysis reveals that education, institutional quality, economic growth, and digital infrastructure are statistically significant and positively correlated with financial inclusion. The study quantifies that a 1% increase in tertiary education enrollment boosts the financial inclusion index (IFI) by 0.001 units. Similarly, a one-unit improvement in institutional quality elevates the IFI by 0.625 points. These findings highlight that access to and comprehension of financial services is bolstered by educational attainment and a trustworthy institutional environment.


CO-EDP, VisionRICO-EDP, VisionRI | Updated: 04-07-2025 09:18 IST | Created: 04-07-2025 09:18 IST
Financial inclusion in MENA: Critical pathways for equitable access
Representative Image. Credit: ChatGPT

Financial exclusion is restricting economic development across the Middle East and North Africa (MENA) region. A new study sheds light on the key factors that drive financial inclusion in the region, offering empirical clarity on the roles of education, institutional quality, economic growth, and digital infrastructure.

The peer-reviewed research, titled “Achieving a More Inclusive Financial System: What Does the MENA Region Need? A Sensitivity Analysis for GCC and Non-GCC Countries,” was published in Economies and offers a comprehensive analysis of 74 banks across 10 countries from 2010 to 2021 using the System Generalized Method of Moments (SGMM) technique.

What are the determinants of financial inclusion in the MENA region?

Based a new composite index of financial inclusion, which integrates both access and usage dimensions, the study identifies several critical macroeconomic and institutional determinants.

The analysis reveals that education, institutional quality, economic growth, and digital infrastructure are statistically significant and positively correlated with financial inclusion. The study quantifies that a 1% increase in tertiary education enrollment boosts the financial inclusion index (IFI) by 0.001 units. Similarly, a one-unit improvement in institutional quality elevates the IFI by 0.625 points. These findings highlight that access to and comprehension of financial services is bolstered by educational attainment and a trustworthy institutional environment.

Furthermore, internet infrastructure plays a pivotal role. A one-unit increase in internet usage corresponds with a 0.0005 rise in financial inclusion, signifying how digital connectivity enables broader access to formal financial systems. Notably, trade openness and inflation emerged as negative determinants. Higher inflation reduces consumers’ purchasing power and discourages saving and investment in formal financial channels. Trade openness, while generally favorable in economic theory, was associated with reduced financial inclusion in this context, likely due to increased volatility and competition impacting local financial ecosystems.

How do financial inclusion drivers differ between GCC and non-GCC countries?

The study further distinguishes between Gulf Cooperation Council (GCC) countries and non-GCC MENA countries to explore regional disparities in financial inclusion dynamics.

In GCC countries, financial inclusion was found to be significantly influenced by education, the dependency ratio, institutional quality, and GDP growth. Notably, a larger working-age population positively correlated with financial inclusion, suggesting that labor force participation and demographic advantage play a more prominent role in high-income, resource-rich economies.

In contrast, non-GCC countries, typically more economically diverse and institutionally varied, exhibited a different pattern. While education and institutional quality remained significant, digital infrastructure gained prominence. Internet access and mobile connectivity were stronger enablers of inclusion here, underscoring the importance of digital solutions in overcoming physical and economic barriers to formal finance. However, trade openness and the dependency ratio had significant negative impacts in non-GCC states. These countries, often grappling with structural unemployment and higher youth dependency, saw financial inclusion erode with increased economic openness and demographic pressures.

Inflation negatively affected both subregions, but the effect was more pronounced in the non-GCC cohort, indicating greater vulnerability to macroeconomic instability. Meanwhile, GDP growth had a stronger inclusionary effect in non-GCC countries than in the GCC bloc, possibly due to policy-driven economic diversification efforts in the former.

What are the policy implications for building a more inclusive financial system?

The findings underscore a series of actionable recommendations for policymakers across the MENA region. First, strengthening education systems and promoting tertiary enrollment are foundational to long-term inclusion, equipping populations with the skills to navigate increasingly complex financial landscapes. Financial literacy campaigns, particularly in rural and marginalized communities, should be integrated with national education strategies.

Second, digital infrastructure investment is paramount. Governments must accelerate broadband deployment, mobile banking platforms, and digital payment ecosystems, especially in underserved regions. This is especially relevant for non-GCC countries where physical banking infrastructure remains limited.

Third, enhancing institutional quality is non-negotiable. Strengthening governance frameworks, improving regulatory oversight, and combating corruption are essential to fostering public trust and ensuring equitable access to financial services. Transparency and efficiency within financial institutions not only expand access but also deepen usage.

Next up, economic stability must be maintained. Policymakers need to guard against inflationary shocks and design inclusive monetary frameworks that ensure affordability of financial products. Simultaneously, trade policies should be coupled with robust domestic safety nets and support for local enterprises to mitigate the adverse impacts of global competition.

The study recommends that policy interventions be tailored to the specific economic and social contexts of GCC and non-GCC countries. While education and governance reforms are universally beneficial, infrastructure investment and macroeconomic stabilization measures may yield higher returns in non-GCC settings.

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