Financial inclusion

Running Head:FINANCIAL INCLUSION IN THE MIDDLE EAST AND SAUDI ARABIA 1
Financial Inclusion In The Middle East and Saudi Arabia
Name
Institutional Affiliation
Abstract

FINANCIAL INCLUSION IN THE MIDDLE EAST AND SAUDI ARABIA 2
The concepts of access and use of financial services are important pointers to development of a
nation. The rise in urban population and the acceptance of money as a medium of trade gave rise
to the emergence of financial institutions such as bank, microfinances, investment institutions,
mobile banking, internet banking and informal table bank arrangements. These financial
institution play a myriad of roles in the world economy. Examining these roles enables for proper
planning of a country’s investment and the welfare of its population. Some of the benefits that
this financial institutions extend to the public include inculcating the financial saving habits,
offering loans for investment in either business or acquiring assets. Offering and securing
business transaction is a benefit that has increasingly realised in form of mobile banking
platforms, internet banking and direct bank deposits, local and international transfers. Financial
inclusion offers individuals and business avenue to grow. Another important aspect of financial
inclusion is the education opportunities and lessons offered by the banks and other players. Thes
education not only exposes the positive aspect of sound financial management but also allows
the targeted users to choose highly customized packages that around tailored around the needs of
a specific user. These paper will seek to find out prevalence of financial inclusion as at 2017.
The use of mobile banking, uptake of loans and various reasons of being unbanked will be
examined.
Introduction

The World Bank describes financial inclusion as the processes or ways by which persons
and business organizations access or utilize beneficial and cheap financial products and services
to furnish their needs. Businesses and individuals have diverse needs for financial inclusion.
These needs vary from one individual to another. Some businesses or persons require financial
services as loan and investment opportunities while other are they for saving purposes and the
security offered in comparison to cash transactions. The need to explore this area of day-to-day
life and undertakings of various businesses cannot be overlooked due to the wealth of insights
and key performance indicators it offers. This key indicators reveal a large number of data points
and information from all facets of an economy. From agricultural activities, retail and wholesale,
public transport and health, financial inclusion offers the subscribers ways and means and
facilitating the fulfillment of their needs. Governments and related development partners are able
to assess the financial health of its businesses and population through analysis of data from banks
and other lenders. This in turn helps in informed decision making processes. The result is proper
and informed planning that is realisable because it is based on real and true data.
Motivation
The motivation to research on the topic of financial inclusivity is derived from the urge to
understand the relationship between several aspects and factors that move people or pull people
towards the banks and the products they offer. This is also a good starting point for investors,
regulators and third parties to learn about the gaps that exist in the financial and banking sectors
and being in position to an some questions like why some individuals are shunning the being in
the mainstream banking sectors. This will exploration of financial inclusion offer rewards in term
of investment opportunities, business expansion opportunities and knowledge on the direction of

emerging trends in mobile banking, internet banking and extending other financial services to the
unbanked.
Financial inclusion is a tool that helps the wretched of earth get out of poverty using
concerted efforts and knowledge towards making financially sound decisions. Access to financial
inclusion is a one of the factors that aids in reducing social and financial inequality in a
community. The poor are facilitated in making sound saving and investment decisions that
slowly edge them out of practices of financial mismanagement. The saving culture cultivated by
financial institutions is of the enablers of escaping from poverty and poor spending practices.
Financial inclusion offers skills, knowledge and tools that help communities better manage their
financial resources. These well choreographed tools and skills stimulate steady growth in wealth
and investment.
Financial inclusion advocates for both parties to be fully involved in the management of
sources and assets. The aspect of being involved in the management and making decisions in
collaboration with the financial institutions help individual grow in skill and knowledge and can
reap more by diversifying the products and services one can derive from informed financial
inclusion. The services and products such as accounts, payment platforms, loans and other
related services directly offer employment to millions in the community. Additionally, when this
services are delivered to the populace, individuals can in turn take advantage and start business
around these products, for example when dealers in motor vehicles and farm machinery
negotiates an asset financing deal from a financial institution. This shows how individuals and
business can take advantage of financial inclusion is a community. Numerous business and
income generating activities have been built around financial inclusivity. Mobile network

operators and internet engineers are continuously upgrading their systems in the direction of
financial inclusivity.
The factors mentioned in the above section are a motivation enough to study the
environment and issues influencing the uptake of financial services in a community.
Investigating the prevalence of bank accounts, loans and mobile banking in a population reveals
a lot of hidden characteristics and demographics of the
Literature Review
Importance of Financial Inclusion
As previously defined in this paper, financial inclusion involves access to affordable and
usable financial services from financial institutions. Bank form the bulk of financial institution
that are largely bridging the gap between the banked and the unbanked. Telecommunication
service providers are also helping in lifting individuals from being underbanked to banked. An
Underbanked person is who has holds a basic bank account but does not enjoy other services and
products that associated with holding the account such as loans, mobile banking and debit or
credit cards. This subsequent section will examine the literature related to financial inclusion
with specific focus on the Middle East and The Kingdom of Saudi Arabia. This a region that is
economically, socially and financially diverse and different from other parts of the world.
According to 2006 World Bank report, it is evident that financial inclusion is the Middle
East is of importance in job creating, alleviating poverty and boosting the incomes of the general
population. The governments and microenterprises are significant employers in this region. In
order to have a vibrant environment for Small and medium-sized enterprises to thrive, uptake of
financial services and products was identified as paramount. Access to credit, loans, payment

platforms, overdraft services and financial management skills were identified as some of the
pillars of a conducive environment for SMEs to prosper as the continue to offer secure job
opportunities to the population. The individuals are also targeted in the drive for financial
inclusion in order to encourage inform income management skills, saving culture, ability to
create new jobs and reduce the likelihood of financial vulnerability.
The World Bank also identifies the poor as the most unbank persons. Therefore,
providing or facilitating financial inclusion to the poor is a among their priority agenda in the
Middle East and Saudi Arabia. It has been established that once the poorest of a nation have
access to financial services, their income steadily improves. The end product is a population
living in the middle class or above the poverty line.This is because financial inclusion provides
one with knowledge and products and services geared at improving the subscribers income or
saving habits. Financial institution play a critical role in nurturing the customer's’ investment and
saving plans. These saving plans and credit facilities tailored as per the need of a specific client
instill financial discipline. This discipline is reciprocated in kind by the investments or savings as
the steadily grow over time. Many individuals have grown their wealth in this process. Financial
inclusion is key factor in reducing global poverty and it has been notably entrenched in the
Millenium Development goals. It features prominently in seven of the MDGs. Some of the
services offered by financial institution such as insurance, loans, and savings culture help
cushion the individual or business enterprises against risk; both natural and man-made.
The time for financial inclusion is ripe. However, the government of these region are not
doing enough to increase the uptake of financial inclusion. The lack of civic education, civil
campaigns and other related efforts are doing harm to the progress of financial inclusion is this
region. Nevertheless, is important to note that the countries in this region have among the per

capita income in the world. Fueled by the abundance of oil and natural gas. The wealth though is
not evenly distributed. In this region, one can find the super rich and the extreme poor. Financial
inclusion is of particular interest to the poor. The government and regulatory bodies should, in
their endeavour of diversifying from the oil, realise that growth of other segments of the
economy can be realised at faster rate by opening up avenue that encourage banking of the
unbanked.
Deloitte (2018) identifies several regulation priorities that the Middle East and Saudi
Arabia should implement in order for the individuals and businesses to reap benefits of financial
inclusion in the world of financial services. These items include issues related to cross-border
regulation, compliance conventional financial crimes such as money laundering, innovation and
technology. The insurance should also borrow from other region in products related to offering
financial stability across board. Financial stability offers opportunities for recovery and
rejuvenation of business and person in time of calamities. The separation of politics and access to
financial services is important for every individual to feel secure and enjoy the security offered
by the banking institutions. The culture of risk and compliance should be cultivated. Once these
issues are smoothen out, the people will and especially the unbanked will embrace the services.
It is important that these section identifies various services and products that form the
basis of financial inclusion and their benefits. There are four basic metric of financial inclusion,
namely payment, insurance, credit and savings. The payment product encompasses all mode that
facilitate the transfer of value or money from one individual to another without the use of cash.
Banks and related financial institutions provide means for paying for conventional goods and
services. These means include payment cards, mobile transactions, internet transaction and bank
transfers. These modes are advantageous to cash transaction as they increase security and ease of

accounting to both the vendor and the customer. It is secure to carry payment cards as opposed to
cash. The ability to effect mass payment and payroll management by the click of a button is
another benefit. Banks offers saving facilitates. The savings earn interest and can be viewed as a
means of low return investments. Credit facilities individuals and businesses to realise goals
sooner and pay for them slowly as they enjoy the benefits. Insurance services offer the ability of
recovering unscathed in light of losses, accidents and other related hazards. In some countries,
some assets must be insured by law. This has been greatly successful in the motor vehicle
industry.
Data, Model and Proposed Statistical Analysis
This section outline the statistical test that will be carried out on the data. The source of
the data is the World Bank’s global financial inclusion index 2017. One dataset has been cleaned
to include for countries in the Middle East (Kuwait, Bahrain, Saudi Arabia and the United Arab
Emirates). The second data set only includes the Kingdom of Saudi Arabia. The statistical
analysis shall begin with the descriptive analysis of 5 variables. The variable chosen for this
section are banked or unbanked(fin2), age(age), education level(edu), within-economy household
income quintile(inc_q) and respondent in employment(emp_in). The value in brackets is the
variable name. The research will then develop a model for predicting the banked or unbacked
depending on the other four variables. Ordinal logistic regression will be employed and its
assumptions will be verified.
Since there are two data sets, the researcher will first conduct the tests with the dataset
containing the four Middle East countries and the repeat the procedure with only Saudi Arabia.

This will enable ease of comparison between the Middle East and Saudi Arabia in terms of
financial inclusion.
The .do files for the two process will be als outline below.
proportion age educ inc_q emp_in fin2
ologit fin2 age educ inc_q emp_in
graph pie, over(educ)
graph pie, over(inc_q)
graph pie, over(emp_in)
Please note that the .do file is the same for the two process because we are using the same
variables for the processes.
Presentation of Results
Results for Middle East Dataset
-------------+------------------------------------------------
educ |
_prop_65 | .047888 .0033466 .0417376 .0548929
secondary | .4891945 .0078346 .4738494 .50456

_prop_67 | .4584971 .0078094 .4432303 .4738422
_prop_68 | .0044204 .0010397 .0027862 .0070064
-------------+------------------------------------------------
inc_q |
_prop_69 | .1692043 .0058763 .1579938 .1810393
_prop_70 | .1866405 .0061065 .174963 .1989094
_prop_71 | .1940079 .0061976 .1821452 .2064481
_prop_72 | .2138998 .0064268 .2015699 .2267697
_prop_73 | .2362475 .0066575 .2234451 .2495478
-------------+------------------------------------------------
emp_in |
_prop_74 | .1839391 .0060722 .1723313 .1961435
_prop_75 | .8160609 .0060722 .8038565 .8276687
-------------+------------------------------------------------
fin2 |
yes | .80722 .0061827 .7948079 .8190523
no | .1925344 .0061797 .1807082 .2049409

_prop_78 | .0002456 .0002456 .0000346 .0017426
--------------------------------------------------------------
. graph pie, over(educ)
. graph pie, over(inc_q)

.graph pie, over(fin2)

. graph pie, over(emp_in)
.
regress fin2 age educ inc_q emp_in
Source | SS df MS Number of obs = 4072
-------------+------------------------------ F( 4, 4067) = 146.10
Model | 80.5230421 4 20.1307605 Prob > F = 0.0000
Residual | 560.372587 4067 .137785244 R-squared = 0.1256

-------------+------------------------------ Adj R-squared = 0.1248
Total | 640.895629 4071 .157429533 Root MSE = .37119
------------------------------------------------------------------------------
fin2 | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
age | -.0037063 .0004744 -7.81 0.000 -.0046365 -.0027761
educ | -.090256 .0100345 -8.99 0.000 -.1099291 -.0705829
inc_q | -.043688 .0042294 -10.33 0.000 -.0519799 -.0353961
emp_in | -.2167675 .0152667 -14.20 0.000 -.2466985 -.1868365
_cons | 1.861566 .0308984 60.25 0.000 1.800989 1.922144
------------------------------------------------------------------------------
end of do-file
Results from Saudi Arabia Dataset

-----------+------------------------------------------------
educ |
_prop_58 | .0763132 .0083624 .0614378 .0944279
secondary | .5520317 .015663 .5211358 .5825311
_prop_60 | .3716551 .0152208 .3423087 .4019797
-------------+------------------------------------------------
inc_q |
_prop_61 | .1754212 .0119792 .1531386 .2001797
_prop_62 | .1823588 .0121623 .1596933 .2074471
_prop_63 | .1823588 .0121623 .1596933 .2074471
_prop_64 | .2160555 .0129627 .1917028 .2425734
_prop_65 | .2438057 .0135241 .2182536 .2713112
-------------+------------------------------------------------
emp_in |
_prop_66 | .2239841 .0131315 .1992724 .2508005
_prop_67 | .7760159 .0131315 .7491995 .8007276
-------------+------------------------------------------------

fin2 |
yes | .6987116 .0144514 .6696185 .7262899
no | .3012884 .0144514 .2737101 .3303815
--------------------------------------------------------------
.
. graph pie, over(educ)
. graph pie, over(inc_q)

. graph pie, over(emp_in)
. graph pie, over(fin2)

regress fin2 age educ inc_q emp_in
Source | SS df MS Number of obs = 1009
-------------+------------------------------ F( 4, 1004) = 46.33
Model | 33.0953607 4 8.27384017 Prob > F = 0.0000
Residual | 179.312964 1004 .17859857 R-squared = 0.1558
-------------+------------------------------ Adj R-squared = 0.1524
Total | 212.408325 1008 .210722545 Root MSE = .42261
------------------------------------------------------------------------------

fin2 | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
age | -.0064425 .0012657 -5.09 0.000 -.0089262 -.0039588
educ | -.0918634 .023554 -3.90 0.000 -.1380841 -.0456426
inc_q | -.0622314 .0097738 -6.37 0.000 -.0814109 -.0430519
emp_in | -.2539837 .0325232 -7.81 0.000 -.3178049 -.1901625
_cons | 2.116612 .0697304 30.35 0.000 1.979778 2.253446
------------------------------------------------------------------------------
Discussion of Results
The results presented in the section above for both the Middle East data set and Saudi
Arabia data set are almost similar. The proportion tables of the respondent to age, education
level, banked or unbanked, employment and household income show some consistency. The R2
values for the ordinal logistic regression are very close for both case. This the factors of financial
inclusion in Saudi Arabia are at equal level with the rest of the Middle East. The percentage of
banked person is Saudi Arabia is 70% while in the greater region is 80%. The Kingdom needs to
pull up irs socks. The employment levels in Saudi Arabia are also lower that the regional average
by 3%. However Saudi Arabia is doing more on the education front than the other nation. The

OLS model in both case fits in well. There no indicators of multicollinearity due to low value of
R2. The R2 for Saudi Arabia is 0.15 while for Middle East is 0.12. This shows that age,
employment, income level and education level are good predictors for the banked or unbanked.
Critical Analysis of Limitation
The model in this case was limited by the number of data item used. The age of the data
is also a factors that can limited the strength of the model. The data used in this study was
collected in 2017. It is about two years old and therefore does not capture recent developments in
this area of financial inclusion. Some government and policies have changed in the region and
this is greatly affecting financial inclusion. The age of the data is a major limitation. Some
countries have not been included in the analysis and therefore found in the Middle East and the
Arabian Peninsula. This countries include Qatar, Oman among others. Therefore some
conclusion of this paper are generalized.
Recommendation for Future Work
The concepts of financial inclusion have not yet been fully studied and appreciated by the
world. There many areas that are ripe for future work such the use of mobile banking, table
banking and hawala system in filling the void left by financial institution. Future studies can also
focus on regulations, laws and legislations that limit the uptake of financial institution.
Moreover, the goal of each future study in this area should be to foster and inform on the
penetration of financial inclusion.
The Conclusion

Financial inclusion and the critical roles it plays in the economy cannot be ignored. It is
one the tools that is currently being used to fight against poverty and financial uncertainty all
around the world. It is from this study that the researcher has established the age, education level,
income and employment status influence the uptake of financial services. This paper is not
conclusive due to the large number of variables omitted from the model.
References
Adams, D. Timothy Why Financial Inclusion Matters() | Center for Financial Inclusion. (2019).
Centerforfinancialinclusion.org. Retrieved 21 April 2019, from
https://www.centerforfinancialinclusion.org/why-financial-inclusion-matters/

Financial Services Regulatory Barometer Middle East 2018 | Deloitte Saudi Arabia | Finance
Services. (2019). Deloitte . Retrieved 21 April 2019, from
https://www2.deloitte.com/sa/en/pages/finance/articles/financial-services-regulatory-
barometer-middle-east-2018.html
Importance of financial inclusion. (2014). The Herald. Retrieved 21 April 2019, from
https://www.herald.co.zw/importance-of-financial-inclusion/
(2019). Siteresources.worldbank.org. Retrieved 21 April 2019, from
http://siteresources.worldbank.org/INTMNAREGTOPPOVRED/Resources/MENAFlags
hipInclusion12_20_10.pdf
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