This paper examines the role of formal institutions in shaping financial inclusion. Drawing on cross-country data from 144 economies, it measures financial inclusion by the uptake of four basic financial services, that is, formal accounts, saving, borrowing, and digital payments. The analysis reveals that both legal tradition and the quality of formal institutions significantly influence financial inclusion. Specifically, countries with stronger institutional quality, characterized by better governance, rule of law and regulatory frameworks, exhibit higher levels of financial inclusion. The study also shows that the relationship between institutional quality and financial inclusion is affected by the existence of various so-called financial barriers, such as the level of transaction costs, lack of geographic access, lack of documentation, financial illiteracy, religion, distrust in financial institutions, lack of economic opportunities, and insufficient income. Notably, we find evidence that the positive relationship between institutional quality and financial inclusion weakens as these barriers intensify. Robustness checks confirm our findings, and results are particularly pronounced in lower-income countries where financial inclusion is more constrained. The paper contributes to the literature by distinguishing between access and actual use of financial services and by empirically testing how formal institutions interact with various financial barriers. Policy implications underscore the need for comprehensive reforms that enhance institutional quality while simultaneously addressing structural and socio-economic obstacles to financial service usage. • There is a positive relationship between formal institutions and financial inclusion. • The positive impact of formal institutions on financial inclusion is weakened as the degree of existing barriers to finance increases.
Peng et al. (2026) studied this question.