All Theses and Dissertations


Master of Science in Economics

Faculty / School

Faculty of Business Administration (FBA)


Department of Economics

Date of Award

Fall 2018


Dr. Adnan Haider

Committee Member 1

Dr. Adnan Haider, Institute of Business Administration, Karachi

Project Type


Access Type

Restricted Access


xiv, 103


Financial inclusion has become a vital policy matter especially in the case of developing countries as optimal allocation of opportunities and resources helps countries to climb up the economic ladder. However, only 69% of the world’s adult population owns a formal bank account (Findex 2017) and out of this, majority of accounts are held in the developed world. As per the World Bank report, the financial inclusion rate even varies across the countries belonging to the same income group, but developing countries mostly have very low rates of financial inclusion. With all the efforts towards financial inclusion, recent figures in Pakistan show that only 13% of the adult population owns an account at formal financial institutes, which is much lower than other countries with similar per capita income. In order to curtail this low rate of financial inclusion, World Bank has collaborated with many countries to develop and implement their financial inclusion strategies. The importance of financial inclusion in the economic development and this alarming rate of financial inclusion in Pakistan has propelled the current study to analyze the determinants of formal and informal financial inclusion in Pakistan. The current study analyzes in detail the determinants of formal financial inclusion through four indicators: ownership of account at formal financial institute, formal savings, formal borrowing and use of mobile money account. Secondly the determinants of barriers to formal financial inclusion are also analyzed. Gender gap in financial inclusion like any other economic issue exists and its determinants are also examined in the current study. The informal financial inclusion rates in Pakistan are higher than formal financial inclusion, thus, its determinants are also analyzed. Finally, all the results are compared with Tanzania, which is a similar developing Muslim economy. Data for Pakistan and Tanzania is taken for the year 2011 and 2014 from two major data resources: Global Findex database and Financial Inclusion Insights. Probit estimation model is used to analyze the determinants of binary dependent variables. First, our finding suggests that for both Pakistan and Tanzania, being more educated, earning, being married and older in age, favors formal financial inclusion. Similarly, being female reduces the probability of being financially included except in case of formal borrowing. Also, in case of Pakistan, belonging to Punjab and KPK decreases the probability as compared to being in Sindh for having an account or saving at formal financial institute. Second, we analyzed the barriers to formal financial inclusion and concluded that most of the barriers to financial inclusion are voluntary and lack of money and lower level of financial literacy are the major reasons for not having an account. Religious reasons also came out to be the highest reported barrier in both the countries. It is observed that lesser education, belonging to lower income quantile and to rural region, and being female are mostly associated with the barriers. Third, we attempted to see if there is any difference in the determinants of financial inclusion of male vs female. We observed that higher education, higher income quantile, and being married influences the probability of having an account for both male and female but the magnitude of probability is higher for these three characteristics in males as compared to females. Finally, we analyzed the determinants of informal financial inclusion in each country as rate of informal financial inclusion in both countries is much higher than formal financial inclusion. The findings suggest that determinants of informal finance are different than that of formal finance. This difference can be seen especially in the case of effect of region, gender, and education as belonging to rural areas, being female and lesser education are positively associated with the use of informal finance. Since, this is the first study to analyze the formal and specially the informal financial inclusion in Pakistan with cross country analysis and using two different data sets, it has very important policy implications to foster policies towards increasing inclusive growth in the country.

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