Determinants of Financial Inclusion in OIC Countries

: The OIC countries have endorsed financial inclusion as part of their initiatives to uphold the interests of the Muslim world. However, they experience the greatest levels of financial system exclusion, as they are found to have a lower percentage of access to formal bank accounts. Therefore, this study aims to investigate the determinants of financial inclusion in OIC nations. Macroeconomic factors (GDP and the money supply) and bank variables (non-performing loans and the number of internet users) covering the year 2011 to 2020 from 40 OIC nations are included in this paper. Using panel data, the results indicate that both bank variables are positively significant in determining financial inclusion for OIC countries. No significant relationship is found between studied macroeconomic factors and financial inclusion.


Introduction and Background
Financial inclusion is a process to ensure the individuals, households and businesses in a community have adequate access to formal financial services and products such as transactions, credit cards, payments, saving and insurance and that these are delivered in a sustainable way (Singh & Singh Kondan, 2011). Financial inclusion aims to guarantee that all adults in a community have easy access to an affordable investment instrument (David, Oluseyi, Emmanuel, 2018). A well-developed banking industry, especially one that is adequately linked to banking services, is critical for the whole economy because it contributes to the progression of an investment environment by providing credit, encourages even low-income people to save in financial firms for long-term higher income, and contributes to the generation of people's potential by letting them successfully manage their monies for their future (Datta & Singh, 2019).
OIC nations have agreed to include financial inclusion in their efforts to defend the interests of the Muslim world. To improve consumer rights, financial literacy, and access to financial services, the OIC has resolved to establish a joint committee on financial inclusion. The OIC members also support the alignment of financial operations with international regulatory principles and standards, which would enhance the role and impact of economic growth (Securities Commission & The World Bank Group, 2020). However, they did not show a high commitment toward transformation that provides access to financial services to the public. Furthermore, the majority of research (see David et al., 2018;Abel et al., 2018;Evans, 2016) employs a sample from low-income regions like Nigeria, Africa, and Zimbabwe, and there are not many studies about the OIC nations and financial inclusion.
Many individuals in nations with low levels of financial inclusion, on the other hand, are unable to resolve their financial problems owing to the absence of access to finance. In the ten years from 2011 to 2021, account ownership of financial inclusion grew by 50% globally, reaching 76% of the adult population. The average account ownership rate in developing economies climbed by 8 percentage points, from 63 to 71 percent, between 2017 and 2021 (Asli, Leora, Dorethe and Saniya, 2022). Despite this progress, however, over 1.7 billion people worldwide are projected to be unbanked and disallowed access to financial services, implying that over 30% of the worldwide population still face financially disadvantaged and have difficulties in their financial stabilities (Demirgüç-Kunt et al., 2017). As a result, the sample of commercial bank depositors is utilized as a measure of financial inclusion to determine the effect of other independent variables on financial inclusion. Furthermore, according to Global Findex 2018 1 , member of OIC countries is found to have a lower percentage of access to formal bank accounts, which is 46.3%, compared to the other non-OIC developing countries which is 71.55%. Most of the OIC countries appealed to pursue measures that would increase financial inclusion, however, they did not show a high commitment toward transformation that provide access to financial services to the public. OIC member countries are considered to be the countries with the greatest level of financial system exclusion. The problem becomes more difficult by fact that, on average, just 15.66% of individuals in low-income OIC countries have a bank account with a recognized financial institution (Business et al., 2021). The majority of OIC countries lack awareness of the development of financial inclusion. Hence, that could be the reason why OIC is picked as a population, besides as a way to add value to the current findings. Therefore, this paper focuses on examining the determinants which include macroeconomic variables and bank variables factors that might influence financial inclusion in OIC countries within 10 years period.
The remainder of the paper is structured as follows: in Section 2, the literature review on past empirical studies in the area of financial inclusion is presented, followed by Section 3 on the research design, data set and methodology. In Section 4, we present the result and findings and finally, in Section 5, we summarize the main conclusion. Mishra (2012) posits that GDP per capita is a metric of a nation's wealth and prosperity per citizen; it serves as a leading indicator of economic growth. Therefore, an increase in the GDP per capita should theoretically constitute a gain in the quality of life for the citizens of the chosen nations, and may therefore be used as a gauge of economic growth. Furthermore, Nizam et al. (2020) argue that one of the main forces behind the economic expansion is the availability and use of financial services.

Relationship between macroeconomic variables and financial inclusions
Asare Vitenu-Sackey & Hongli (2020) show that GDP per capita has a significant effect on alleviating poverty because economic growth plays a vital role in poverty alleviation. The outcome in line with Anarfo et al (2019) implies that financial inclusion is improved by increasing financial sector development and economic growth. Chikalipah (2017) discovers that the amount of income measured by GDP per capita is a major element in determining a country's degree of financial inclusion.
However, few research papers (see Eldomiaty et al., 2020;Oyelami et al., 2019) revealed the negative relationship between GDP and financial inclusion stating that forward-thinking customers expect an increase in their future incomes and save against it. Based on the literature stated above, hence, the following hypothesis is tested: H0: GDP is not significant in determining the financial inclusion in OIC countries HA: GDP is positively significant in determining the financial inclusion in OIC countries On the other hand, the money supply is approximately made up of cash and deposits that may be used almost as rapidly as cash. Evans (2016) posits that money supply has a positive impact on financial inclusion. David et al. (2018) argue that the positive correlations between these variables, imply that broad money increases financial inclusion in the country as the quantity of funds in existence continues to grow.
For some reason, money supply could also be negative towards financial inclusion, due to the fact that Nigeria and African countries that are not OIC members were included in the past research. According to Mujahidin (2019), the money supply in an economy is impacted by monetary policy, which in turn affects interest rates and inflation. He posits monetary policy is the action of the government to influence the macro situation implemented through the money market. This is a general definition of monetary policy, more specifically; monetary policy can be interpreted as the macro action of the government where it is referred to the central bank by influencing the process of money creation. Different countries also have different approaches to monetary policy, and there is also a viewpoint on differences between monetary policy in conventional and Islamic economics in research (Mujahidin, 2019). Based on the literature stated above, hence, the following hypothesis is tested: H0: There is no significant relationship between money supply is not significant and financial inclusion in OIC countries HA: There is a positive and significant relationship between money supply is not significant and financial inclusion in OIC countries

Relationship between bank variables and financial inclusions
According to Anarfo et al. (2020), the non-performing loans (NPLs) held by banks are also a major factor in determining the financial inclusion index. An increase in NPLs diminishes financial inclusion because when an institution is in trouble, it becomes more conservative and eliminates some disadvantaged or underprivileged populations (Wang and Guan, 2017).
In contrast to earlier studies, Ahmed and Shehzadi (2022) discovers a positive relationship between NPLs and financial inclusion which is supported by Musau et al. (2018) who find that the rise in the proportion of banked people as a result of financial inclusion may lead to an increase in the number of risky clients in the banking system. These consumers also have a bad record of default payments on their loans, which eventually increases their exposure to credit risk. Based on the literature stated above, hence, the following hypothesis is tested: H0: Non-performing loans are significant in determining financial inclusion for OIC countries HA: Non-performing Loans are not significant in determining financial inclusion in OIC countries On the other hand, Sarma and Pais (2008) suggest that physical infrastructure for connectivity and information is also significantly associated with financial including. Evans (2016) discovers the relationship between internet users and financial inclusion where the internet has increased the opportunities for credit disbursement in Africa's isolated places. It has enabled the provision of home banking services to illiterate clients who manage their savings via mobile phones. The significant results supported by Ofosu-Mensah Ababio et al. (2021) demonstrate how mobile phones are becoming increasingly important in boosting financial inclusion in frontier nations. This finding is in line with Telephone and internet subscriptions have a beneficial influence on financial inclusion (Sarma and Pais, 2008;David et al., 2018). The more individuals use the Internet, the more financial services are given to a wider number of residents in rural regions (David et al., 2018) which will subsequently increase the level of financial inclusion (Evans, 2018). Based on the literature stated above, hence, the following hypothesis is tested: H0: The number of internet users is not significant in determining financial inclusion for OIC countries HA: The number of internet users is positively significant in determining financial inclusion for OIC countries

Research Design
This paper uses secondary data associated with the economic indicators over ten (10) Table 3 shows that the dependent variable which is financial inclusion with a proxy of the number of depositors with commercial banks per 1,000 adults and is explained by the total number of resident nonfinancial corporations (public and private) and families with deposit accounts at commercial banks and other resident banks acting as commercial banks. Due to a lack of information on account holders, figures for a number of nations only contain the total number of deposit accounts. Checking, savings, and time deposits make up the three primary types of deposits.
Meanwhile, the first independent variable which is GDP can be explained by the GDP annual percentage growth rate at market prices based on constant local currency and total gross value added by all resident producers in the economy plus any applicable product taxes and less any applicable subsidies not factored into the value of the items. It is estimated without taking into account the deterioration and depletion of natural resources or the depreciation of manufactured assets. The expected coefficient for this variable has a significant effect on financial inclusion in OIC countries.
As for the money supply, the proxy can be explained by the total amount of money held outside of banks, demand deposits other than federal government ones, time, savings, and foreign currency deposits made by non-federal residents, bank and traveller's checks, as well as other securities like Certificates of Deposit and Commercial Paper over a specific time period. This variable is expected to have a significant effect on financial inclusion in OIC countries.
Other than that, the NPL can be measured by the portfolio's entire value divided by the amount of nonperforming loans (including nonperforming loans before the deduction of specific loan-loss provisions).
Included in the loan amount from the balance sheet that is designated as a nonperforming loan is the gross value of the loan. The expected coefficient for this variable has an insignificant effect on financial inclusion in OIC countries.
For the last independent variable which is the number of internet users, it can be explained by all users of the internet during the previous three months (from every location), as well as all types of internet-accessible devices such as computers, mobile phones, personal digital assistants, gaming consoles, and digital TVs. This variable is expected to have a significant effect on financial inclusion in OIC countries.

Descriptive Analysis
This paper uses secondary data associated with the economic indicators for ten (10)   In Table 1, financial inclusion has a score that ranges from 24.61 depositors to 1901.5 depositors with a mean of 514.1305 depositors and a median of 370.84 depositors. GDP variables range from -62.0759% to 123.1396%, with a high of 123.1396% and a low of -62.0759. It has a score of 3.23% on average and 3.9555 on the median. On the other hand, money supply variables have a maximum score of 62.0543% and the lowest value of -17.4101%. It has an average of 11.3391% and a median of 10.3930%. The NPL variable has a minimum score of 0.7092% and a maximum value of 47.5959%, with an average of 8.3358% and a median of 6.0269%. The last variable, which is the number of internet users, has a score that ranges from 0.9% to 100%, with a mean of 37.36662% and a median of 26.7184%.  Anarfo et al. (2020), the NPLs have a detrimental effect on financial inclusion because problematic institutions tend to become more conservative.

Correlation Analysis
Next, the correlation between financial inclusion and the internet is 0.7448, indicating a strong positive relationship. Looking at the internet's p-value, 0.0000, it shows a significant relationship between these variables at a 1% level. This finding suggests that as the number of internet users increases, and financial inclusion level in OIC will increase too. These results are supported by David et al. (2018) which indicate as more individuals use the Internet, then more financial services are offered to a wider number of residents. P-values are presented in the parentheses *,**,*** indicates significance at 1%, 5% and 10% respectively. This study is using Fixed Effect Model (FEM) analysis as compared to Pooled Ordinary Least Squares (POLS) and Random Effect Model (REM) as the study utilizes the F-Chow test to analyze whether the research observation is appropriate for POLS or FEM. The result shows that the p-value is significant at a 10% level with a value of 0.0000, providing the FEM is preferable to POLS for this study. There are heteroscedasticity and serial correlation issues in this study. So, it needs to use a remedy of cluster regression. The result in Table 3 shows that the model is significant at a 5% level with an F-statistic value equal to 0.0059. The Rsquared is 35.78% which means the chosen independent variables are explained 35.78% variability of financial inclusion in OIC countries. Another 64.22% might be from another factor that is not included in this study.

Empirical Results
The coefficient for GDP is negatively correlated, when the GDP increase by 1%, the financial inclusion will decrease by 0.4177%. This result supports the empirical findings by Eldomiaty et al. (2020) where the forward-looking consumers expect an increase in their future income, they might not see the benefit and advantage of conserving money in the current situation because they believe their income will be sufficient to support them in their future.
The relationship between financial inclusion and money supply is negative with a coefficient value of -0.0018, however, this relationship is not significant in determining the level of financial inclusion in OIC countries. In addition, the findings in Table 3 also show a positive and significant relationship between NPL and financial inclusion. In order words, the result suggests that financial inclusion will grow by 0.01818% when NPL increase by 1%. The findings supported by Musau et al. (2018) which the findings show the increasing result of financial inclusion may lead to an increase in the number of risky clients in the banking system. Additionally, these consumers default on their loans, which ultimately increases the exposure to credit risk (Ahmed & Shehzadi, 2022).
The coefficient for internet users is 0.0127 and positively significant at the 1% level. This indicates that for every 1% increase in internet users, financial inclusion will rise by 0.0127%. A significant positive relationship is revealed by the p-value of 0.008 supported by previous research (David et al., 2018;Evans, 2016Evans, , 2018Ofosu-Mensah Ababio et al., 2021) which stated that the importance of connectivity and knowledge in this activity. Therefore, the results imply that current technology advancements and financial innovations are important in improving the financial inclusion level in the banking industry (Ofosu-Mensah Ababio et al., 2021). It is also important to note that the influence of the internet's capabilities reaches beyond low-income nations to middle-and high-income nations as well. Since our findings showed that the Internet has a significant influence on financial inclusion regardless of the country's income, it follows that the Internet has a strong, significant impact on financial inclusion in OIC countries.
Thus, this study concludes that the NPL and the internet significantly impact financial inclusion while GDP and money supply, have no significant impact on financial inclusion.

Conclusion
Based on the findings obtained in this study, we reject the hypothesis for GDP, money supplies and NPL variables. Meanwhile, for the number of internet users, we accept the hypothesis that the internet is significant with financial inclusion in OIC countries. The result shows that bank variable factors which are NPL are significant because when people are involved with financial services, they are exposed to less quality users which will lead to credit risk. Meanwhile, the Internet also has a significant impact on financial inclusion which indicates most of the people in OIC countries use the Internet to get themselves involved with financial inclusion.