Foreign Banks, Asymmetric Information and Financial Inclusion in Emerging and Developing Countries

This article empirically examines the effects of foreign bank presence on the various dimensions of financial inclusion, conditional on the level of information sharing. Using data on individuals in 93 emerging and developing countries, it is found that higher foreign bank presence is associated with a reduction in the probability that an individual receives a loan from a formal financial institution. It is also associated with more reliance on loans from informal sources such as family. However, information sharing through an institution, such as a private credit bureau or public credit registry, partially offsets the negative effect of foreign bank presence on the access to credit dimension of financial inclusion. The results of this study emphasize that for economies to take advantage of the potential benefits of financial globalization, appropriate information sharing infrastructure is necessary.