Linking Financial Inclusion to Zero Hunger: Impacts on Agricultural Productivity, Severe Food Insecurity, and Dietary Diversity in Rural Bangladesh

ABSTRACT

Food insecurity persists among smallholder farming households in low‐income countries, yet the relationships between financial inclusion and agricultural productivity, severe hunger, and dietary diversity remain inadequately understood. This study investigates these relationships using primary survey data from 636 randomly selected smallholder households in southwestern Bangladesh. We construct a binary financial inclusion index using multiple correspondence analysis and employ instrumental variables (IV) estimation—with mobile phone ownership, distance to bank, and internet access as instruments—to address endogeneity. Outcome measures include log agricultural productivity (2SLS), three binary indicators of severe food insecurity from the Household Food Insecurity Access Scale (IV probit), and Household Dietary Diversity Score (IV Poisson). Financial inclusion increases agricultural productivity by 11.8% ( β  = 0.112, p  = 0.001), substantially reduces the probability of severe food insecurity, and improves dietary diversity by approximately 1.99 food groups (from a baseline of 3.87 to 5.86). Ordinary least squares estimates show negative, statistically insignificant associations, indicating severe downward bias. Instrument relevance and validity are confirmed through diagnostic tests. Disaggregated analysis reveals that credit services are associated with productivity gains, digital financial services with dietary diversity improvements, and insurance and savings with reduced food insecurity. However, a substantial proportion of financially included households still experience moderate‐to‐severe food insecurity. These findings suggest that financial inclusion is associated with enhanced agricultural productivity and nutrition and reduced acute hunger. Policies that expand digital financial infrastructure and link financial services to agricultural value chains can accelerate progress toward Sustainable Development Goal 2 in agrarian economies.