The Interlinkage between Social Exclusion and Financial Inclusion: Evidence from Pakistan

Using the data from Pakistan Panel Household Survey (2010), this paper assesses the role of financial inclusion in reducing social exclusion. The findings from regression analysis confirm a statistically significant negative impact of financial inclusion on social exclusion including deep [multidimensional] social exclusion. Deep exclusion for population having financial inclusion drops to 34.8% from 81% otherwise. Most importantly, none of the women was found having deep social exclusion if she has access to financial services. Results from logistic regression analysis confirm that having access to finacial services lowers the likelihood of facing marginal exclusion by 0.54 times and deep exclusion by 0.28 times compared to those having no access. Further, results from sum score method corroborate that Pakistan has higher prevalence of minor and marginal exclusion as compared to deep [multidimensional] social exclusion. The evidence further suggests that rather than income and consumption, old age, low education and gender contribute to multidimensional social exclusion mainly. The ratio of population within age groups 35-44 and 45-54 facing the multidimensional exclusion is 53.1% and 70.8% while the number rises to 85.5% and 80.5% for age groups 55-64 and 65 and above. Similarly, percentage of population with only primary education facing multidimensional social exclusion is 36% as compared to 4.7% for population having a degree. Finally, 23.3% of women face multidimensional exclusion as compared to 14.1% of men. We conclude that government needs to rethink the social design as well as to ensure improved access to financial services.