COVID-19 response needs to broaden financial inclusion to curb the rise in poverty

TL;DR

This paper demonstrates that expanding financial inclusion in low- and lower-middle-income countries can significantly mitigate the rise in poverty caused by COVID-19, especially by reducing inequality's impact.

Contribution

It reveals that financial inclusion indirectly reduces poverty by alleviating inequality, a novel insight differing from previous studies.

Findings

Financial inclusion is a key driver of poverty reduction.

Without intervention, global poverty could rise from 8% to 14%.

Improving financial access could substantially lessen poverty increase.

Abstract

The ongoing COVID-19 pandemic risks wiping out years of progress made in reducing global poverty. In this paper, we explore to what extent financial inclusion could help mitigate the increase in poverty using cross-country data across 78 low- and lower-middle-income countries. Unlike other recent cross-country studies, we show that financial inclusion is a key driver of poverty reduction in these countries. This effect is not direct, but indirect, by mitigating the detrimental effect that inequality has on poverty. Our findings are consistent across all the different measures of poverty used. Our forecasts suggest that the world's population living on less than $1.90 per day could increase from 8% to 14% by 2021, pushing nearly 400 million people into poverty. However, urgent improvements in financial inclusion could substantially reduce the impact on poverty.