Financial depth and financial inclusion as a catalyst for social finance in Ukraine

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Type of the article: Research ArticleAbstractUnveiling the link between financial depth, financial inclusion, and social finance serves as a demonstration of a financing mechanism for socio-economic well-being. This study aims to analyze the dynamics of financial depth and inclusion, including aspects of social finance in Ukraine. Using annual data for 2008–2024, the study constructs composite indices of financial depth (the M2/GDP, the deposits/GDP, the credit/GDP, the bonds/GDP), financial inclusion (bank branches, ATMs and self-service complexes, and POS terminals, per 100,000 adults), and normalized share of pension payments via banks. The paper reveals the decoupling of financial depth and financial inclusion since 2014. The results show a decline in financial depth (from 0.46 in 2008 to 0.18 in 2024) and an increase in financial inclusion (from 0.17 in 2008 to 0.83 in 2024). Financial depth deteriorates, as shown by the decrease in the M2/GDP (from 68% in 2013 to 46% in 2024), the deposits/GDP (from 48% in 2012 to 36% in 2024), the credit/GDP (from 64% in 2014 to 14% in 2024), and the bonds/GDP (from 0,83% in 2008 to 0,01% in 2024). Ensuring financial inclusion is supported by digital finance development, as pronounced by the decline in bank branches, the faster growth of POS terminals compared to ATMs, and the rise in non-cash transactions and social payments via banks. For financial inclusion to draw social finance development along with it, there is a need to strive for a depth-led financial system that provides not only basic financial coverage.AcknowledgmentThe paper was funded as part of the “Financial tools for reducing economic inequality in Ukraine” research project (No. 0124U002254), conducted at the State Organization “Institute for Economics and Forecasting of the National Academy of Sciences of Ukraine”.

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