The Moderating Role of Financial Stability in the Relationship between Financial Regulation and Financial Inclusion Performance

Abstract

The purpose of this body of work is to investigate the impact that financial regulation has on the financial inclusion of banks, taking into account the moderating role that financial stability plays. The research works collected information about Islamic banks and the window of conventional Islamic banks from the years 2010 to 2021. The GMM estimation method is used in the research work to conduct the analysis of this relationship. In the research that was done, the z-score index was used to measure financial stability, the financial inclusion indicators' index was used to measure financial inclusion, and the capital adequacy ratios were used to measure financial regulation. The primary objective of the GMM estimation method is to circumvent the issue of endogeneity. The following conclusions can be drawn from the findings of the research: According to the findings of the research study, there is a negative correlation between financial regulation and financial inclusion. Through increased financial inclusion, financial stability helps mitigate the adverse effects that are caused by financial regulation. For policy implication financial inclusion affects bank operational efficiency, risk management, and funding stability. Our findings suggest developing nations should priorities financial inclusion and stability.