Does Financial Inclusion Lead to Financial Stability? Evidence From South Asian Countries – A Case of SMEs

Abstract

Financial inclusion (FI) and financial stability (FS) are the top policy agendas worldwide. The governments of Asian countries emphasized their concerns about macroeconomic instability due to high FI. With limited studies, especially in South Asia, this study examines the relationship between financial inclusion and stability of the small and medium enterprises (SMEs) using Generalized Method of Moments by considering eight South Asian countries for the period 2000-2020. Also, the effects of various FI measures on FS indicators. The findings indicate that FS can be attained by increasing the lending to SMEs, decreasing NPLs and also high per capita GDP.