Financial Literacy Research Roundup: September 28, 2026

Pakistan's large shadow economy remains key challenge to tax collection, quality of governance, and slow economic growth. Formalizing financial inclusion offers a strategic and evidence based trail by increasing trustful dependence on official, transparent and traceable system to shrink the size of shadow economy. This knowledge brief highlights the development of financial inclusion from 2008 to 2025. It also defines the underlying causes of the shadow economy and financial inclusion and the empirical insights by financial services contribute to the transfer of economic activities into the formal economy. Pakistan's still suffers from gaps across gender based exclusion, regional and income disparities despite a significant progress in branchless banking and digital payment platforms. Thus, cash remains a main medium of exchange leading to tax avoidance and informal economic activity. This brief suggest that reduction in shadow economy needs inclusive access and continuous usage of financial services for Pakistan's citizens. Therefore, with organized reforms, financial inclusion is a powerful tool to reduce informality and it will support long-term sustainable development. 1.Introduction Pakistan, the world's fifth most populous country and second populous in South Asia, still operating with a large shadow economy, basically the economy outside the official system. In 2024, a joint study conducted by the ILO and the SMEDA had estimated the shadow economy in Pakistan to be approximately 35-40% of the GDP, estimated at about US$457 billion. About 6% of the GDP is unreported annually. This weakens the inclusive growth and lowers government revenue. A significant number of traders do not register their business or workers and large number of workers remain unbanked. The high cash transactions enhances inequality and creates financial challenges for the country. Therefore, connecting individuals and businesses into documented economy through digital transactions, regi...

As microfinance has expanded in India, so have efforts to regulate the sector. The competing regulatory authority of the state governments and the central bank have produced unexpected refusals by borrowers to repay loans, claiming waivers. These waivers, however, are often found to be fakes. In the context of financial inclusion, this article examines regulatory authority at the margins of the state. The growth of microfinance has raised concerns over the systemic impact of non-performing assets in the sector. While the expansion of formal finance has required the greater reach of the central bank, this often comes into competition with the political arm of the state. This paper shows how waivers—both real and fake—operate as a form of claims-making by poor borrowers.

During economic downturns, urban policymakers must evaluate whether housing aid effectively prevents evictions. Analyzing 207, 203 observations from the Understanding America Study during COVID-19 and using recursive bivariate probit models with instrumental variables, we find that housing aid is linked to a 4.3% reduced likelihood of eviction. For households with access to credit, this reduction increases to 6.2%. An inverted-U trend appears: households with one to two credit sources experience over 39% reductions, while those with three or more credit sources see smaller effects of approximately 4.1%. This trend indicates financial stability rather than overleverage; more credit sources are associated with higher creditworthiness and less reliance on aid. These findings were consistent across the different estimation methods. This implies that combining housing assistance with financial inclusion strategies that emphasize credit quality over quantity could improve eviction prevention during economic downturns.

Cash remains a dominant payment method in many markets despite the widespread availability of digital alternatives such as debit cards, creating costs for consumers, firms, and governments. This research examines which interventions most effectively increase debit‐card use, how effectiveness varies with incentive form and amount, and whether average effects conceal meaningful differences across customers. A large‐scale randomized field experiment with approximately 1.5 million customers of a Mexican bank tests cash and gift‐card incentives of 60 and 300 MXN, repeated benefit‐focused nudges, and combinations of nudges with cash incentives. Estimated treatment effects on debit‐card transaction frequency and spending range from approximately 0% to 5%, with larger incentives producing less‐than‐proportional gains in transaction frequency and incentive‐form effects varying across outcomes and incentive amounts. Causal‐forest estimates show substantial treatment‐effect heterogeneity: for example, the effect of the 300 MXN cash incentive is concentrated among customers with relatively high baseline debit‐card use, while some near‐zero average effects mask offsetting positive and negative subgroup responses. Nudges have small nonsignificant effects alone and no detectable incremental effect when combined with cash incentives. These findings show that effective payment‐activation strategies depend not only on intervention design but also on which customers receive them.