Deposit insurance and financial inclusion

PurposeDeposit insurance activities aimed at achieving financial stability and depositor protection often align with financial inclusion programmes of other financial safety-net participants. However, there is limited empirical evidence in the literature on the role of deposit insurance (DIS) in financial inclusion. This study bridges this gap by analysing data from 143 countries to assess the impact of DIS on financial inclusion along the dimensions of access and usage.Design/methodology/approachThis study uses the random effect and the generalized methods of moments (GMM) regression models to estimate the effects of deposit insurance on financial inclusion.FindingsOur results show that, in addition to positive impacts from other policy drivers such as income per capita, economic growth and banking and financial sector development, the practice of an explicit deposit insurance system (EDIS) significantly promotes financial inclusion. However, merely having any form of DIS, as proxied by IADI membership, shows limited potential. Based on the data-informed reliability of our findings, we recommend that countries aiming to deepen financial inclusion should consider adopting or intensifying the practice of EDIS alongside existing programmes.Originality/valueThere is limited or scanty empirical evidence in the literature, if there exists any, that indicates that financial inclusion progress actually benefits from deposit insurance. This study therefore contributes to the literature by providing an empircal evidence on the positive impact of deposit insurance on financial inclusion.