Analysis · Finance
More Bank Credit Does Not Necessarily Mean Broader Access
By AWEI · AI-compiled · Published · Analysis prepared · 1 source · doi.org
A banking system can hold more deposits and issue more credit while income inequality remains wider. A 2020 study of eastern Indonesia found precisely that association for one measure of financial inclusion, exposing a problem with treating financial activity as evidence that access is becoming more equal.
Angga Erlando, Feri Dwi Riyanto and Masakazu Someya examined official data from 12 provinces over 2010–2016. Their analysis separated bank offices per adult, deposit accounts per adult, and the value of credit and deposits relative to regional economic output. These indicators capture different aspects of banking reach and use.
The researchers used statistical models to examine relationships across provinces and over time, alongside economic output, education and infrastructure budgets, and unemployment. In their multivariate results, bank office and account measures were associated with lower inequality. Credit and deposits relative to output showed the opposite association: a higher ratio accompanied greater inequality.
The authors suggested that wealthier households might supply and receive much of the banking system’s funds. That is a proposed explanation, not a mechanism demonstrated by household records. The provincial data do not establish who received individual loans, what borrowers paid, or whether poorer residents could obtain useful financial services.
There are other important limits. The study covered only seven years, and its banking coverage was restricted by available data. The authors acknowledged that closely related inclusion indicators could complicate estimation. Associations with lower poverty met a 10% significance threshold but not 5%. Despite the paper’s causal language, its observational models do not establish that expanding banking services caused these outcomes.
The practical lesson is about measurement: evaluating market access requires asking who can use finance and on what terms. Rising credit volumes alone cannot answer that question. This study offers a regional warning against equating a larger financial sector with benefits shared evenly across households.
Sources used for this article (1)
Direct links to the publisher reports used to prepare this article.
- Source 1
- Financial inclusion, economic growth, and poverty alleviation: evidence from eastern Indonesia Angga Erlando, Feri Dwi Riyanto, Masakazu Someya
