Has expansion of mobile phone and internet use spurred financial inclusion in the SAARC countries?

Lenka, Sanjaya Kumar; Barik, Rajesh Article Has expansion of mobile phone and internet use spurred financial inclusion in the SAARC countries? Financial Innovation Provided in Cooperation with: Springer Nature Suggested Citation: Lenka, Sanjaya Kumar; Barik, Rajesh (2018) : Has expansion of mobile phone and internet use spurred financial inclusion in the SAARC countries?, Financial Innovation, ISSN 2199-4730, Springer, Heidelberg, Vol. 4, Iss. 1, pp. 1-19, https://doi.org/10.1186/s40854-018-0089-x This Version is available at: https://hdl.handle.net/10419/237121 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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[email protected] 1 Consumer Unity & Trust Society (CUTS) International (a global independent non-profit economic policy research and advocacy organization), D-217, Bhaskar Marg, Bani Park, Jaipur, Rajasthan -302016, India Full list of author information is available at the end of the article Abstract: Exclusion from the mainstream financial world is a burden on the poor of many countries. The proliferation of new mobile and online financial services, such as e-banking, money transfers, and payment processing has the potential to provide access to basic financial products and services to financially excluded people. The purpose of this study was to investigate the effects of the growth of mobile phone and Internet use on financial inclusion in the South Asian Association for Regional Cooperation (SAARC) countries from 2004 to 2014. We applied principal component analysis to construct a financial inclusion index that served as a proxy variable for the accessibility of financial services in the SAARC countries. Using three different models-the fixed effect, random effect, and panel correction standard errors modelsthis study discovered a positive and significant relationship between the growth of financial inclusion and expansion of both mobile phone and Internet services. Moreover, an empirical study of the control variables showed that the levels of income and education were positively associated with financial inclusion, whereas the size of the rural population and unemployment were negatively related to financial inclusion. In addition, the empirical estimates posit a unidirectional causal flow from the growth of mobile and Internet services to expanded financial inclusion in the SAARC countries. Keywords: Financial inclusion, Fixed effect, Random effect, Panel corrected standard errors, SAARC JEL classifications: B26, F36, F38, G2F Introduction Financial inclusion is one of the unspoken key drivers for building an inclusive society and inclusive economy. In recent times, member countries of the South Asian Association for Regional Cooperation (SAARC) have paid considerable attention to promoting financial inclusion in their respective nations. The levels of financial inclusion and development vary widely among the SAARC countries. Until recently, for vast numbers of people, formal financial products and services have been out of reach. Financial exclusion is caused by demand factors as well as supply factors. Accordingly, to speed up the drive toward greater financial inclusion, initiatives must be taken from both the demand and supply sides. Focusing on supply-side factors alone will not solve the problem of financial exclusion. However, efforts to promote financial inclusion have Financia l Innovation © The Author(s). 2018 Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. Lenka and Barik Financial Innovation (2018) 4:5 https://doi.org/10.1186/s40854-018-0089-x been adopted primarily from the supply side, including nationalization of banks, an extension of bank branches to rural areas, provision of credit to previously excluded sectors, and adjustment of loan interest rates for low-income households. The development of mobile financial service providers such as bKash Limited (a subsidiary of BRAC Bank) and Dutch Bangla Bank mobile services in Bangladesh, and the expansion of branchless banking and mobile banking in Pakistan, are among the more recent initiatives taken by individual SAARC countries to increase the speed of financial inclusion. Utilization of mobile phones and the Internet to provide financial services has become a new way to offer unbanked people more opportunities to participate in the formal financial system. Mobile money services have increased the access of rural people to financial products and services at a reasonable cost (Thulani et al. 2014). E-banking with a well-developed banking infrastructure provides many secure and convenient services, including 24/7 banking, bill paying, online deposits, money transfers between individuals and between banks, on-time message delivery, around-the-clock call centers, and purchase of airline or train tickets. E-banking is effective in reducing transaction costs. The ability to conduct financial transactions anytime, anywhere using a personal computer or mobile device saves both time and money by eliminating the need to visit a physical bank branch. Banks have worked to build consumer confidence that e-banking is as convenient and reliable as banking in person. Alam et al. (2013) found that mobile banking is more convenient, affordable, and secure. E-financial services increase the banking habits of customers as well. Liao and Cheung (2002) also found that a well-developed, user-friendly banking infrastructure provides customers with such advantages as greater accuracy, reliability, security, convenience, and speed of transactions. The use of mobile banking and Internet banking is quite popular in African countries. Examples include Celpay Zambia Limited’s mobile payments solutions, as well as WIZZIT mobile banking solutions and MTN mobile telecommunications in South Africa. In Kenya, through M-PESA’s mobile financial services, people are entering into a new kind of social structure in which mobile banking plays an important role. M-PESA has proven successful in connecting a large number of previously unbanked and underbanked people in Kenya with the financial system. Kusimba et al. (2013) concluded that the availability of mobile money solutions created a new form of value in Kenyan lives by providing the means for easy transfer of money to friends, relatives, and family members. This facility provides new avenues for social relationships and supports networks with loved ones. For small-scale businessmen and traders, mobile and Internet banking are helpful for conducting daily business transactions. Similarly, a few of the SAARC countries have made efforts to extend the drive toward financial inclusion. The introduction of the eZ Cash mobile financial service by the Central Bank of Sri Lanka in 2012 is one significant initiative that widened the boundaries of financial inclusion. This mobile money service has the dual objectives of financial inclusion and economic growth. eZ Cash has covered many unbanked citizens, and it has opened new market opportunities for both banking and non-banking institutions. In Pakistan, the launching of Easypaisa mobile financial services in 2009 was a major initiative for faster financial inclusion. The primary emphasis of this service is to extend mobile banking accounts, create consciousness about mobile banking, and spread information regarding the benefits of mobile banking. In India, the development of Airtel Lenka and Barik Financial Innovation (2018) 4:5 Page 2 of 19 Money and EKO India Financial Services has covered a large number of previously non-banked customers, spreading the boundaries of financial inclusion. Currently, many developing countries are working to include financially excluded people in the mainstream formal financial system through the use of mobile banking and Internet banking. In each SAARC country, the number of mobile users is greater than the number of people in the banking population. There is enormous room for banks to extend their banking services through mobile banking to the unbanked population. The extension of mobile and Internet banking to unbanked/under-banked regions and citizens is a means through which all SAARC countries could fulfill the dream of financial inclusion successfully. To fulfill this dream of financial inclusion, in 1969 the Government of India (GOI) nationalized fourteen banks. The objective was to increase the savings and access to credit of low-income people and to extend banking services to less developed financial regions (Hirashima et al. 2011). In 1980, six more banks were nationalized to expand the range of financial inclusion in India. For the expansion of bank branches in the rural unbanked regions, the Central Bank of India declared a branch licensing policy in 1977. The Central Bank governors argued that through the bank licensing policy, the expansion of bank branches to rural areas or the unbanked regions from 1977 to 1990 had a significant effect on poverty reduction (Burgess and Pande 2005). In India today, financial inclusion for every individual is seen as a necessary precondition for inclusive development (Sangmi 2013). Unfortunately, because of leakage and corruption high in the government distribution system, many resources are unable to reach the poorest of the poor. As a remedy, for some of the services, the GOI has implemented a direct cash transfer system for transferring money directly to the beneficiaries’bank accounts. It has been argued that payment of government subsidies through bank accounts and the post office will have less leakage. In this regard, mobile phones and the Internet play a vital role in helping the government fulfill this program successfully. Moreover, mobile payments can eradicate corruption from the system by achieving greater distribution. In addition to financial inclusion, many government departments are providing mobile services to citizens for the purpose of good governance. Using mobile phones, the people can gather all kinds of government information or file complaints in case of any government irregularities. This access will help to better the welfare of the citizens. In addition, the advancement of information and communication technology spurs economic growth by making the market more efficient, which ultimately generates more income for the poor and reduces poverty in the economy. The remainder of this paper is structured as follows. In Section 2, we examine the status of mobile and Internet services in SAARC countries from 2004 to 2014. Section 3 provides an overview of related research. In Section 4, we provide a statement of the contributions of this study, and in Section 5 we detail our methodology. Section 6 gives our results and provides a discussion. Section 7 provides our conclusion and policy implications. Status of mobile and internet services in SAARC countries from 2004 to 2014 Cherotich et al. (2013) argued that the introduction of new technology in the banking system in Kenya completely altered the banking philosophy. These innovative methods Lenka and Barik Financial Innovation (2018) 4:5 Page 3 of 19 provided a strategic approach to the achievement of high profitability, efficiency, and productivity among Kenya’s commercial banks. In India, the Planning Commission of the GOI (2009) advised that mobile and Internet banking in India, and the associated reduction in transaction costs, had proved to be the most prominent innovation in the banking industry to facilitate financial inclusion, especially among individual customers. This position was supported by Rajeev and Vani (2017) and Vadavadagi and Allagi (2014). Similarly, Sultana and Khan (2016) found that mobile financial services in Bangladesh were gaining high popularity as a result of the initiatives taken by the Bank of Bangladesh. In addition to providing mobile money services, different SAARC countries have undertaken other supplementary initiatives to speed up the move toward financial inclusion. For example, some SAARC members have introduced awareness and initiated financial literacy and education programs to provide individuals with expertise in handling new technologies introduced by the banking systems. Through the help of the South Asian Federation of Exchange (SAFE), a financial literacy initiative program was introduced in Pakistan to increase the level of financial inclusion. Similarly, other SAARC countries such as India, Bangladesh, and Sri Lanka have undertaken key initiatives to introduce financial literacy to their citizens. Table 1shows selected economic indicators in SAARC countries from 2004 to 2014. The table shows that the number of mobile and Internet users increased across all the SAARC countries over the period indicated. The countries with higher per capita income used more mobile and Internet services. Separately, Fig. 1shows the status of mobile phone and Internet usage in SAARC countries. Internet and mobile services have been essential determinants for extending the drive toward financial inclusion. Across all the SAARC countries most of the financial transactions occur through Internet banking and mobile banking, both of which have become increasingly popular choices over the past decade, especially among younger adults, as a result of the introduction of iPhones and Android handsets. Although the number of both mobile users and Internet users increased rapidly, there was a greater percentage of mobile users compared with Internet users in all SAARC countries from 2004 to 2014. Among all the SAARC countries, Maldives ranked at the top for both mobile users and Internet service users. In the case of mobile users, Sri Lanka placed second, whereas Bhutan was second in Internet service users among SAARC countries. The percentage of mobile users in all other countries respectively (India, Bangladesh, Pakistan, Afghanistan, Nepal, and Bhutan) was about the same (around 73–82%). Afghanistan ranked last in terms of Internet users (Fig. 1). Literature review The concept of financial inclusion through mobile and Internet banking is not new. Although research regarding financial inclusion through mobile and Internet banking in African countries has been reasonably extensive, the literature has not been equally thorough in addressing financial inclusion in the context of SAARC countries. Moreover, most the studies focused on e-banking or mobile banking have been descriptive in nature. Some of the studies that have conducted empirical analysis in African and Asian countries are listed in Table 2. Lenka and Barik Financial Innovation (2018) 4:5 Page 4 of 19 Table 1 Selected economic indicators in SAARC countries from 2004 to 2014 Country Indicators/Years 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Afghanistan POP 24,118,979 25,070,798 25,893,450 26,616,792 27,294,031 28,004,331 28,803,167 29,708,599 30,696,958 31,731,688 32,758,020 PCI 224.91 257.17 257.17 380.40 384.13 458.95 569.94 622.37 690.84 666.79 633.56 MOB 2.49 4.82 9.83 17.71 29.22 37.89 45.77 60.32 65.45 70.66 74.88 INT 0.10 1022 2.10 1.9 1.84 3.55 4 5 5.45 5.9 6.39 Bangladesh POP 141,307,489 143,431,101 145,368,004 147,139,191 148,805,814 150,454,708 152,149,102 153,911,916 155,727,053 157,571,292 159,405,279 PCI 462.27 485.85 495.85 543.08 618.07 683.61 760.33 833.54 858.93 954.39 1086.80 MOB 1.96 6.28 13.20 23.46 30.16 34.35 44.94 55.19 62.82 74.42 75.92 INT 0.19 0.24 1 1.8 2.5 3.1 3.7 4.5 5 6.63 9.6 Bhutan POP 640,282 656,639 672,228 686,958 700,950 714,458 727,641 740,510 752,967 764,961 776,448 PCI 1107.92 1257.54 1346.08 1755.16 1810.57 1786.81 2201.29 2485.78 2452.15 2383.04 2560.50 MOB 3.01 5.53 12.33 21.99 36.61 48.10 54.99 66.37 75.60 72.19 82.07 INT 3.15 3.84 4.51 5.92 6.55 7.17 13.6 21 24 29.9 34.37 India POP 1,126,135,777 1,144,118,674 1,161,977,719 1,179,681,239 1,197,146,906 1,214,270,132 1,230,980,691 1,247,236,029 1,263,065,852 1,278,562,207 1,293,859,294 PCI 640.60 729.00 816.73 1050.02 1022.5 1124.51 1387.88 1471.65 1449.66 1455.10 1581.51 MOB 4.70 7.99 14.52 20.15 29.53 44.12 62.39 73.19 69.92 70.78 74.48 INT 1.97 2.38 2.8 3.95 4.38 5.12 7.5 10.07 12.58 15.1 18 Maldives POP 312,000 321,000 333,000 349,000 362,000 360,000 367,000 377,000 385,000 393,000 401,000 PCI 3853.33 3488.49 4428.52 5002.86 5850.20 6017.58 6330.79 6497.55 6529.97 7100.91 7635.48 MOB 38.71 68.42 89.50 101.71 138.80 143.20 151.78 159.79 165.62 181.19 189.38 INT 6.58 6.86 11.03 16.3 23.2 24.8 26.53 34 38.93 44.1 49.28 Nepal POP 25,309,449 25,640,287 25,940,618 26,214,847 26,475,859 26,741,103 27,023,137 27,327,147 27,649,925 27,985,310 28,323,241 PCI 288.66 318.74 350.60 396.16 476.55 483.40 595.42 695.88 685.49 692.33 701.68 MOB 0.46 0.89 4.51 12.59 16.00 21.08 34.25 49.17 60.45 76.84 82.48 INT 0.44 0.82 1.14 1.41 1.73 1.97 7.93 9 11.14 13.3 15.44 Lenka and Barik Financial Innovation (2018) 4:5 Page 5 of 19 Table 1 Selected economic indicators in SAARC countries from 2004 to 2014 (Continued) Country Indicators/Years 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Pakistan POP 150,780,300 153,909,667 157,093,993 160,332,974 163,644,603 167,049,580 170,560,182 174,184,265 177,911,533 181,712,595 185,546,257 PCI 652.02 714.03 876.95 953.79 1042.80 1009.79 1043.3 1230.815 1266.38 1275.36 1316.61 MOB 3.23 8.08 21.44 38.34 52.70 55.46 57.28 61.81 67.06 70.13 73.33 INT 6.16 6.33 6.5 6.8 7 7.5 8 9 9.96 10.9 13.8 Sri Lanka POP 19,228,000 19,373,000 19,520,000 19,668,000 19,817,000 19,968,000 20,119,000 20,271,000 20,425,000 20,585,000 20,771,000 PCI 1063.16 1242.42 1424.10 1614.36 2010.95 2057.02 2746.61 3128.69 3366.51 3628.26 3819.15 MOB 11.20 16.84 26.87 39.32 54.18 79.14 83.62 87.54 91.63 95.49 103.15 INT 1.44 1.79 2.53 3.88 5.8 8.78 12 15 18,328 21.9 25.8 Lenka and Barik Financial Innovation (2018) 4:5 Page 6 of 19 As mentioned previously, both mobile and Internet banking help to build an inclusive financial system in a country by providing an easy way to access banking products and services. In addition, there is clear evidence that the wide use of mobile phones spurs economic growth through financial inclusion. Andrianaivo and Kpodar (2012) found mobile phone penetration has a positive impact on economic growth. Moreover, independently, the correlation between mobile phone penetration rates and financial inclusion was found to be positive and significant. Ghosh (2016) conducted a study in 14 major states in India and found that the penetration of mobile telephones had a positive and significant effect on the states’economic growth as well as a positive impact on financial inclusion. Mago and Chitokwindo (2014) conducted a qualitative survey in Masvingo district in Zimbabwe and found that economically disadvantaged people in Zimbabwe have adopted mobile banking because it is easily accessible, fast, cheap, and secure. Ouma et al. (2017) conducted a study in a few selected countries in Sub-Saharan Africa. They found that use of mobile telephones increases saving among povertylevel and low-income households. This increment of deposits and savings was a 0 50 100 150 200 2004 2006 2008 2010 2012 2014 Year Mobile Users (%) ×: MAL : PAK : BHU +: IND : AFG : NPL 0 10 20 30 40 50 2004 2006 2008 2010 2012 2014 Year Internet Users (%) ×: MAL : BAN : SRI : BAN : SRI : PAK : BHU +: IND : AFG : NPL ba Fig. 1 Mobile and Internet services in SAARC countries Table 2 Empirical study conducted in African and Asian countries with regard to mobile and Internet banking Author (s) County Data Sources Findings Ouma et al. (2017) SubSaharan Africa Secondary Data Mobile financial services boost saving habits among the poor and low-income households. Siddik et al. (2017) Bangladesh Secondary Data E-banking improves the performance of banks. Andrianaivo and Kpodar (2012) African Countries Secondary Data Mobile phone use spurs economic growth through financial inclusion. Aker (2010) Niger Primary Data The use of mobile phone services has reduced grain price dispersion. Aker and Mbiti (2010) Africa Secondary Data The use of mobile phones promotes economic development. Ghosh (2016) Indian States Secondary Data Mobile phone use has a positive and significant impact on state economic growth and financial inclusion. Source: Prepared by authors Lenka and Barik Financial Innovation (2018) 4:5 Page 7 of 19 sign of increased financial inclusion, which ultimately has a positive impact on the financial health of the country. Similarly, Siddik et al. (2016) conducted a study in Bangladesh using panel data of 13 banks over the period from 2003 to 2013. Their study found that e-banking had a positive impact on the performance of the banks, and e-banking played a crucial role in accelerating the growth of the economy. These findings suggest that the level of mobile banking usage can affect the financial policy formulation of developing countries. In addition to affecting financial regulatory policy in developing and emerging countries, the use of mobile phones also provides insight into the main reasons for market failure and points to the regulatory steps needed for correction (Klein and Mayer 2011). Furthermore, researchers considered that use of mobile phones and the Internet establishes a good social network among individuals. Based on empirical research, Aker and Mbiti (2010) found evidence that both consumers and producers can benefit from the use of mobile phones and the Internet. Fuller economic development is promoted as well. Consumers can know the exact price of a product by comparing all prices, and producers can conduct business in new markets and set up new business networks. In rural India, there is a wide variation in the prices of agricultural products because asymmetric information exists in the market. Both traders and consumers find it time to consume to gather exact prices for a variety of agricultural products. The use of mobile phones allows them to compare prices in a shorter amount of time and at a minimum cost. The spread of mobile phones has narrowed down the information gap for agricultural products and has helped to increase the welfare of both consumers and sellers by reducing their search cost. The evidence showed that the widespread coverage of mobile phones across the market reduced price dispersion (Aker 2010). The advantage of using mobile phones was analyzed in relation to the fishing industry in India as well. Research demonstrated that the widespread use of mobile phones by the fishermen helped them to keep contact with their family members, relatives, and friends. Mobile phones allowed the fishermen to be aware of current prices and to gather all of the information related to the demand for fish in the market. The far-flung use of mobile phones reduced the risks and uncertainties of the market while increasing efficiency and productivity (Abraham 2007). Recent developments in information and communication technology have smoothed the way for market players to function efficiently. In particular, the greater availability of information encourages even the small and marginalized market players to participate in the market. Eggleston et al. (2002) noted that the development of information and communication technology (ICT) curtailed exploitation of poor farmers by a middleman and enabled the farmers to participate directly in the market. Direct participation in the market raises the farmers’bargaining power and standard of living. Sreedevi and Meena (2011) argued that the existence of ICT in the banking industry provided numerous advantages such as easy access to banking products and services, insurance services, financial education, adequate credit, and financial information or advice. Contribution of this study Some studies (Andrianaivo and Kpodar 2012; Mago and Chitokwindo 2014; Thulani et al. 2014) conducted in African countries focused on the use of mobile phones for easy Lenka and Barik Financial Innovation (2018) 4:5 Page 8 of 19 Effect Model –FEM) showed that Internet usage and financial inclusion are positively related to each other: a 1% increase in Internet use increased the level of financial inclusion 0.319% in the SAARC countries from 2004 to 2014. Except for Internet services, other control variables, such as RPOP and UEMP, were negatively associated with financial inclusion, whereas Y and EDU levels were positively associated with financial inclusion (see Table 9). The coefficient showed that a 1% increase in RPOP and UEMP led to a decrease in financial inclusion of 1.113% and 0.265%, respectively. However, a 1% increase in EDU led to a 0.399% change in financial inclusion, and Y was positively associated with financial inclusion, but statistically insignificant. To determine the robustness of these results, our study used model II (Random Effect Model –REM). The empirical results for this model indicated that financial inclusion was positively linked with Internet services, as in model I: a 1% change in Internet use led to a 0.416% increase in financial inclusion. Moreover, other control variables Table 7 Pedroni panel co-integration test result Test FI, MOB, and INT FI and MOB FI and INT Without Trend With Trend Without Trend With Trend Without Trend With Trend Panel v-stat 0.988 −1.004 6.157 c 4.281 c 0.608 −1.961 b Panel rho-stat −0.794 0.280 −2.900 c 0.141 −0.747 1.082 Panel PP-stat −3.902 c −4.983 c −4.657 c −2.745 c −2.150 b −2.764 c Panel ADF-stat −4.062 c −5.000 c −5.380 c −2.991 c −2.723 c −2.858 b Group rho-stat 1.900 2.490 0.835 1.765 1.835 2.030 Group PP-stat −1.410 a −1.576 −1.451 a −3.648 c 0.612 −3.223 c Group ADF-stat −1.820 b −3.441 c −2.056 b −3.930 c −1.268 −2.714 c a , b , and c indicate significance at 10%, 5%, and 1%, respectively Table 8 Regression on mobile phone and financial inclusion in SAARC countries Variable Model I Model II Model III MOB 0.131 b 0.192 a 0.250 a (2.29) (3.49) (3.98) Y 0.116 b 0.034 0.235 c (2.37) (0.33) (1.92) RPOP −1.615 a −1.302 a −0.178 a (−6.73) (−6.03) (−3.53) UEMP −0.671 a −0.517 a −0.729 a (−3.92) (−3.15) (3.91) EDU 0.107 0.296 0.236 a (0.31) (0.63) (3.31) Model FEM REM PCSE Colinearity 0.791 Heteroscedasticity 639.2 Observation 80 80 80 Prob. 0.086 0.064 0.092 Source: Calculated by authors Note: The bracket value of first, second, and third model indicates t-value, z-value, and again z-value, respectively a Level of significance at 1% b Level of significance at 5% c Level of significance at 10% Lenka and Barik Financial Innovation (2018) 4:5 Page 15 of 19 gave the same results as model I. Last, we used the Hausman test to check the best-fitted model in this study. The result of the Hausman test showed that the probability value was 0.786%, which was more than 5%, so we could not reject the null hypothesis in this case. Thus, the FE model was the best model, rather than the RE model. To address the problem of heteroscedasticity and autocorrelation, we used the Modified Wald test and the Wooldridge test. The results showed that heteroscedasticity and autocorrelation were present in the model II. To overcome the previously cited problems, this study used model III (Panel Correction Standard Errors –PCSEs) in eqs. (2)and(3). Our findings showed that use of both mobile phones and the Internet are statistically significant, and they have a positive impact on financial inclusion in the SAARC countries. Once the co-integration was established (see Table 7), then the issue that needed to be addressed was the direction of causality. We used the panel Granger causality test to estimate the causality between variables. The results of the panel Granger test indicated that there was a unidirectional relationship between MOB and INT with FI (see Table 10). Moreover, MOB had a unidirectional relationship with INT. The results clearly showed that the direction of causality was only from both MOB and INT toward FI, but not vice-versa, indicating that an increase in mobile and Internet users extends financial inclusion in the SAARC countries. Conclusion and policy implications Considering the financial infrastructure gap in SAARC countries, this study investigated whether the expansion of mobile and Internet services fostered financial inclusion in that region based on sample data from 2004 to 2014. Using PCA, we proposed a multidimensional Table 9 Regression on Internet services and financial inclusion in SAARC countries Variable Model I Model II Model III INT 0.319 b 0.416 a 0.512 a (2.51) (3.27) (3.65) Y 0.035 0.031 b 0.123 b (0.36) (2.32) (2.58) RPOP −1.113 a −1.239 a −0.917 a (−6.68) (−6.42) (−5.27) UEMP −0.265 a −0.968 a −0.189 a (−3.44) (−3.07) (−9.10) EDU 0.399 c 0.192 c 0.342 a (1.99) (1.94) (9.97) Model FEM REM PCSE Colinearity 0.786 Heteroscedasticity 585.3 Observation 80 80 80 Prob. 0.083 0.072 0.093 Source: Calculated by authors Note: The bracket value of first, second, and third model indicates t-value, z-value, and again z-value, respectively a Level of significance at 1% b Level of significance at 5% c Level of significance at 10% Lenka and Barik Financial Innovation (2018) 4:5 Page 16 of 19 financial inclusion index that measured information about financial access in the SAARC countries. Our findings indicated that the growthofmobileandInternetusewaspositively associated with financial inclusion and which extended financial access in the SAARC countries. Furthermore, our empirical investigation showed that both income and education levels are positively associated with financial inclusion, whereas the size of the rural population and unemployment were negatively associated with financial inclusion in the SAARC countries. Finally, the study also found that there is a unidirectional causal flow from the increased number of both mobile and Internet users to the expansion of financial inclusion. Considering the evidence that expansion of mobile and Internet use enhances financial inclusion in all SAARC countries, there are two important goals for the governments and financial institutions in that region. First, access to wireless communications and the Internet should be expanded to include all economic groups. Second, secure wireless financial products and services should be made easily accessible and widely available. These steps will have a positive impact on financial inclusion, which in turn can promote economic development. We recognize that the present study has some limitations. It is difficult to identify the causal effect of both mobile and Internet usage on financial inclusion withoutanappropriateinstrument,suchasanexogenousshocktotheadoptionand use of mobile phones and the Internet. Given the absence of data that could be provided by such an instrument, the results of this study may indicate the evidence of causality only, without addressing their endogenous nature. In our research working with the available data, it was impossible to determine causality rigorously. Consequently, our future research may consider these external shocks while investigating the causal relationships. Further research is required in this area in SAARC countries, as well as in other developing countries. Appendix Table 11 Variables and Description Variables Measurement Symbol Financial inclusion Index of financial inclusion FI Mobile penetration Mobile cellular subscriptions per 100 people MOB Internet penetration Internet users per 100 people INT Income GDP per capita Y Rural population Rural population as (% of total population) RPOP Unemployment Total unemployment (% of total labor force) UEMP Education Total secondary school enrollment of both sexes EDU Table 10 Panel Granger causality test result Dependent Variables Sources of causation Independent variables FI MOB INT FI 3.061 (0.025) a 3.794 (0.007) b MOB 1.074 (0.729) 1.081 (0.135) INT 1.857 (0.972) 2.190 (0. 049) a Note: a and b indicate significance at the 5% and 1% level, respectively Lenka and Barik Financial Innovation (2018) 4:5 Page 17 of 19 Acknowledgements We are grateful to Dr. Ruchi Sharma, Indian Institute of Technology Indore for her regular support and suggestions to complete this study easily. We also express our gratitude towards anonymous referees for giving their valuable comments. The authors take all the responsibilities for all the errors and omissions (if there are any). We also thank to our parent organization, the Indian Institute of Technology Indore, India, which facilitated us with all the required resources for this study. Funding We would like to express our gratitude to the Ministry of Human Resource Development, Govt. of India, for providing us financial support during this study period. Author’s contributions SKL carried out design of the research, supervised and analysed the data in the study. RB prepared the manuscript. Both authors read and approved the final manuscript. Competing interest The authors declare that they have no competing interests. Publisher’sNote Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Author details 1 Consumer Unity & Trust Society (CUTS) International (a global independent non-profit economic policy research and advocacy organization), D-217, Bhaskar Marg, Bani Park, Jaipur, Rajasthan -302016, India. 2 School of Humanities and Social Sciences, Indian Institute of Technology, Simrol Campus, Khandwa Road, Indore 453552, India. Received: 26 August 2016 Accepted: 20 February 2018 References Abraham R (2007) Mobile phones and economic development: evidence from the fishing industry in India. Inf Technol Int Dev 4(1):5–17 Aker JC (2010) Information from markets near and far: mobile phones and agricultural Markets in Niger. American Economic Journal: Applied Economics 2(3):46–59 Aker JC, Mbiti IM (2010) Mobile phones and economic development in Africa. J Econ Perspect 24(3):207–232 Alam MZ, Patwary MM, Rahim MA (2013) Mobile money system: the Bangladesh experience. 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