Question

How can we differentiate between financial deepening and financial inclusion?

Answer 1

Financial deepening is a term used by economists to refer to increasing provision of financial services. It can refer both a wider choice of services and better access for different socioeconomic groups.[1] Financial deepening can have an effect on both individuals' and societies' economic situations.An estimated 2 billion working-age adults globally have no access to the types of formal financial services delivered by regulated financial institutions. For example, in Sub-Saharan Africa, only 24% of adults have a bank account even though Africa's formal financial sector has grown in recent years.[1] It is argued that as financial services can be viewed in that are significant positive externalities when more people and firms participate. The availability of financial services that meet the specific needs of users without discrimination is a key objective of financial inclusion. However, it is advisable to maintain a sceptical approach when assessing the effectiveness of financial inclusion initiatives[2]. Research on microfinance initiatives, for example, indicates that wide availability of credit for micro-entrepreneurs can produce informal intermediation, an unintended form of entrepreneurship.