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Financial Stability and Financial Inclusion Comparison

Many reliable studies indicate that the relationship between financial inclusion and financial stability is closely related since both support the other. Financial inclusion is the main goal of all sectors of the excluded society to receive good financial services at low costs.

Financial Inclusion

They are important policy objectives these days, and there is a growing consensus that they can be mutually strengthened and that a coordinated approach – if pursued in a coherent manner – can help policymakers build a strong, inclusive and supportive sector. G-20 global standard-setting bodies (SSBs) to integrate financial inclusion issues into the international financial regulatory framework.

Financial Stability

There is no precise definition of the concept of it, but the definition of the ECB can be used: the financial system is able to withstand the financial imbalance and various shocks, thus reducing the possibility of any impediments that would prevent the completion and completion of financial intermediation, And significantly reduces the allocation of savings to invest in profitable ways. That is, financial stability is a “resistance to economic shocks” in the financial system.

Reasons for the lack of financial stability

We can summarize the main reasons for the lack of financial stability in the following four categories:

financial stability- Internal factors in the organization

The existence of a discrepancy in information, consisting of a poor flow of information, reduces the efficiency of financial markets, and the reason for this discrepancy is that one party has more information about all the other parties on potential investment risk and return, leading to higher risk incidence Credit

Institutional factors affecting the general budget and macroeconomics

Such as weak governance rules and misguided financial practices, which facilitate the possibility of fraudulent practices. This can be addressed by focusing on and promoting financial transparency

There is a weakness in governance rules or inconsistent policies

It is the main cause of exchange rate crises in any country, for example: when a country overcharges in foreign currency, causing a rise in the public debt of the state, and a budget deficit in the whole state, resulting in lack of financial stability.

The nature of the relationship between Them

Despite the growing global consensus that there is a close relationship between financial stability and financial inclusion, the important questions of how to link the two objectives and how to achieve a proper balance between them have not been fully answered.

Recent research by the International Monetary Fund and the World Bank has found that there can be trade-offs and synergies in public policy. For example, financial integration through rapid or uncontrolled credit expansion can weaken financial stability, Financial control is inadequate

Link financial inclusion to electronic payments

On the other hand, linking it through electronic payments, deposits or insurance may have a positive impact on financial stability. As the World Bank concludes, ignoring the link between the two objectives can lead to sub-optimal results.

CGAP studies provide some examples of the linkages between inclusion, stability, integrity, and financial consumer protection, highlighting the importance of policymakers’ understanding of these linkages, and from a political perspective, a better understanding of mutual relations and harmonized political approaches

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