Measurement and determinants of financial inclusion: the case of Jordan

Abstract

This study focuses on measuring financial inclusion in Jordan and identifying its determinants in rural areas with respect to the socio-economic factors based on institutional and social exclusion theories. This is achieved by attempting to answer four interrelated research questions: 1) What is the level of financial inclusion in Jordan in terms of a multi-dimensional approach, and what is the impact of negative factors (Lag) on that level? 2) What are the main socio-economic variables determining having rural people the financial products? 3) What is the individual’s behaviour (purposes and methods) towards savings, credit and payments in rural areas? And 4) What barriers to financial inclusion exist in rural Jordan, and what are the individual factors that affect an individual’s perception of the barriers? Quantitative research methods are employed to achieve the research objective. For determinants of financial inclusion, data was collected through an online survey, and the Probit regression model was employed to analyse a sample of 260 individuals in three rural areas in Jordan. The financial inclusion level in Jordan is estimated using a developed measure which is constructed following Ambarkhane et al. (2016) and data drawn from Financial Access Survey (FAS), Global Findex, World Development Indicators (WDI), and World Governance Indicators (WGI) over the years 2011 through 2017. The empirical findings suggest that negative factors (Lag) and socio-economic factors matter in measuring financial inclusion and identifying its determinants. Firstly, an examination of the impact of negative factors on the level of financial inclusion in Jordan showed a decrease in the level of financial inclusion, demonstrating the most precise level of financial inclusion and the influence of Lag determinants on that level. Secondly, It is evident that being a man, more educated, rich, employed, married or separated, and older are more likely to be financially included. Gender, income, and education are significant variables determining the ownership of mobile money accounts in rural Jordan as the same factors that determine traditional banking. Thirdly, Results revealed that the biggest obstacle to financial inclusion in rural Jordan is a lack of money, followed by a family member having an account and no need for financial services in the third place. Lack of documentation, cost, trust, and religious reasons are not considered obstacles to financial inclusion in rural Jordan. Income and education are the main determinants for financial exclusion in rural Jordan, a tendency also found by Fungácová and Weill (2015) in China and Zins & Weill (2016) in Africa. The study offers the following contributions: Firstly, following previous measures, this is an extended work to measure financial inclusion. This comprehensive measure is vital to recognising financial inclusion and finding obstacles that may discourage people from accessing financial services. It is also critical to establish national financial inclusion goals and track progress toward those goals. Secondly, it provides distinct insights into the determinants of financial inclusion. This contributes to the limited empirical literature on factors influencing financial inclusion in rural areas. Therefore, the thesis provides a significant theoretical and empirical contribution to measuring financial inclusion and identifying the socio-economic factors that determine it by focusing on developing economies such as Jordan and marginalised rural societies and thus addressing the dearth of geographic research in this area. Based on the findings, recommendations to enhance the financial inclusion level and future research directions have been developed.