DOES FINANCIAL INCLUSION ALLEVIATE HOUSEHOLD POVERTY? EMPIRICAL EVIDENCE FROM INDONESIA
DOES FINANCIAL INCLUSION ALLEVIATE HOUSEHOLD POVERTY? EMPIRICAL EVIDENCE FROM INDONESIA

Summary/Abstract: This study’s contribution to literature is presenting empirical evidence on the impact of financial inclusion, meaning elimination of barriers to accessing financial services, on poverty at the household level in developing countries, using Indonesia as a case study. This is a significant problem for developing countries such as Indonesia, which faces high poverty, even though it has achieved rapid financial development. Using the Binary Logistic (Logit) model and data from approximately 300,000 households from the 2017 Indonesian National Social and Economic Survey (Susenas), this research reveals that financial inclusion decreases households’ probability of absolute poverty. Furthermore, financial inclusion can compensate for a lack of assets, a limited number of non-agriculture occupational opportunities in rural areas, and low education levels of household heads. In addition, financial inclusion has the potential to reduce incentives for poor, low-skilled rural people to migrate to urban areas in search of non-agricultural employment opportunities. Policy recommendations based on the results found are twofold. First, for people who are vulnerable to poverty, financial inclusion should be enhanced, especially for poor women-headed farming households in rural areas. Second, for policy-makers concerned with urbanization of low-skilled poor migrants, enhancing financial inclusion in rural areas is needed to help reduce urbanization pressures.

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