Financial inclusion as a catalyst for poverty reduction: unraveling the impact amidst global challenges

Financial inclusion is increasingly recognized as a critical factor in promoting poverty reduction, particularly in regions characterized by significant economic inequality. Despite advancements in expanding access to financial services, a substantial portion of the global population remains excluded from essential financial opportunities, exacerbating poverty. This study aims to assess the impact of financial inclusion on poverty reduction, utilizing an extensive dataset comprising 132 countries over the period from 2004 to 2019. We employ instrumental variable techniques to mitigate potential endogeneity issues, ensuring the robustness and reliability of the results. The findings indicate that financial inclusion is a significant driver of poverty reduction, as it provides marginalized populations with greater access to economic opportunities, thereby facilitating their participation in the formal economy. The study also highlights the pivotal role of financial inclusion in fostering economic resilience, particularly in regions with high levels of inequality. The analysis underscores the importance of inclusive financial systems during times of crisis, such as the COVID-19 pandemic, where access to financial services helped mitigate the adverse economic effects. In light of these findings, we recommend the integration of both digital and traditional financial services as part of comprehensive policy strategies aimed at promoting sustainable economic growth, reducing poverty, and enhancing recovery in post-crisis contexts.