Does foreign bank presence promote or impede financial inclusion? 1

In this chapter, we examine the relationship between financial liberalisation in the form of foreign bank presence and financial inclusion. Does greater foreign bank presence promote or impede financial inclusion? We focus on estimating the impact of foreign bank presence on both the accessibility and usage dimensions of financial inclusion for a panel of 50 diverse emerging and developing economies over 2004–2009. An important dimension of the effects of foreign bank presence on financial sector development relates to that of financial inclusion. Despite its significance, the empirical literature offers little evidence on the relationship between foreign banks and financial inclusion. Our findings show that foreign banks have a strong positive impact in furthering financial access while tending to impede the usage dimension, which is robust to alternative methodologies and definitions.