## Systemic Implications of Financial Inclusion

_IMF Working Papers, September 20, 2024_

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## Bibliographic details
- Authors: Sami Ben Naceur, Bertrand Candelon, Farah Mugrabi
- Published: September 20, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400290763.001

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### Study overview and scope
- Title: Systemic Implications of Financial Inclusion
- Authors: Sami Ben Naceur, Bertrand Candelon, Farah Mugrabi
- Publication date: September 20, 2024
- Series: Working Paper No. 2024/203, Issue: 203, Volume: 2024
- Pages: 51
- DOI: https://doi.org/10.5089/9798400290763.001
- Stock No: WPIEA2024203
- ISBN: 9798400290763
- ISSN: 1018-5941
- Subject areas: Credit; Financial institutions; Financial sector policy and analysis; Financial sector stability; Financial services; Loans; Money; Systemic risk
- Keywords: banking risk; Credit; deposit market; Financial sector stability; Global; loan diversification; Loans; NCB bank; NCBS' role; role of non-commercial banks; Systemic risk

### Key findings on financial inclusion (FI) and bank risks
- The study analyzes the impact of financial inclusion (FI) on various bank risk dimensions, including systemic risk.
- The paper expands on recent research by examining both the type of financial services and the source of FI, particularly the role of non-commercial banks (NCB).
- Contrary to developed countries, credit expansions are linked to lower commercial banking risks in developing and emerging economies, underscoring the benefits of loan diversification in developing and emerging economies.
- FI in deposits generally reduces individual banking risks.
- The effect of deposits-based FI on systemic risk is weaker in developing and emerging economies, likely due to limited asset diversification.
- NCBs tend to increase systemic and idiosyncratic risks for commercial banks through competitive pressures in the loan and deposit markets.
- Banks with stronger Basel capital ratios show reduced idiosyncratic risks.
- There is evidence that banks may relax Basel capital ratios to accommodate lending demands.

### Policy-relevant analysis and implications
- Coordinating macroprudential policies with credit developments further reduces systemic risk by discouraging excessive risk-taking when banks’ capital is more at stake.
- The findings underscore the necessity for regulators to:
  - synchronize macroprudential policies with FI developments, and
  - consider NCBs’ role in financial stability.

### Analytical contributions and gaps addressed
- The study contributes to the literature by analyzing systemic risk implications of FI, an area described as underexplored.
- It expands prior research by distinguishing FI by both service type (credit versus deposits) and source (commercial banks versus NCBs).

*IMF Working Paper: "Systemic Implications of Financial Inclusion", Sami Ben Naceur, Bertrand Candelon, Farah Mugrabi, September 20, 2024; Working Paper No. 2024/203.*

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_Source: https://www.imf.org/en/publications/wp/issues/2024/09/20/systemic-implications-of-financial-inclusion-555132_