The Effect of Financial Inclusion on Income Inequality in 33 Provinces in Indonesia
Dani Satria Nuraman, Mathew Farrell Sinaga, Abram Julion Manurung
Parahyangan Catholic University
Abstract
Income inequality is one of the problems faced by developing countries including Indonesia. An effort that is believed to be able to overcome this problem is financial inclusion. Financial inclusion is all efforts aimed to eliminate all forms of price and non-price barriers towards people access to utilize financial services. Higher financial inclusion is expected to encourage an easier access to financial services for the communities, especially for the low income people who have limited access to financial services. This study use the panel least square method with secondary data of 33 provinces in Indonesia from 2015 to 2017. The Gini ratio is used as a proxy for the income inequality, while financial inclusion is illustrated by the ratio of outstanding loans of small and medium enterprises to the total outstanding loan at commercial banks. This study aims to see the impact of financial inclusion on income inequality in 33 provinces in Indonesia. The results of this study indicate that inclusion affects negatively and significantly on the gini ratio, which means that the increase in financial inclusion can reduce the income inequality.
Keywords: Income Inequality, Financial Inclusion, Indonesia
Topic: Economics