Financial Technology and Financial Inclusion in Emerging and Developing Economies

Abstract

Financial inclusion has been promoted as a worthy goal for all societies, and the global sustainable goals, among other national efforts, are geared towards access to basic financial services. Although financial inclusion has been the focus of numerous studies, there is still limited research on the role of financial technology (FinTech) in rural and urban areas, genders, and developed and emerging market dichotomy in access to financial services. Moreover, little is known about the effect of digital financial mechanisms on institutional quality, inclusive growth, and developed reduction. Recent advances in digitisation, artificial intelligence, and related technologies provide avenues for in-depth assessment of inclusive finance via the interface of FinTech in emerging and developing economies. Covering 28 countries, this thesis investigated three primary themes, each aimed at addressing the existing knowledge gap. The first empirical study examined the role of financial technology (FinTech) in promoting financial inclusion across emerging and developing economies (EMDEs). While financial inclusion has been widely studied, limited research focuses on the concurrent impact of FinTech on financial access in multiple EMDEs. Using Principal Component Analysis (PCA), a new financial inclusion index was constructed, incorporating two dimensions: access and usage. A System Generalized Method of Moments (GMM) model was applied to examine the relationship between FinTech and financial inclusion, while the Ordinary Least Squares (OLS) technique was used to assess factors influencing barriers to inclusion. The results revealed that a 1% increase in FinTech leads to a 0.1772 unit rise in the financial inclusion index. Additionally, the study found that education, GNI per capita, and broad money to GDP affect barriers to financial inclusion. The second empirical study analysed the effect of institutional quality on digital financial inclusion in EMDEs. Improving financial inclusion depends in part on the quality of institutions. However, there are limited studies on the relationship between institutional quality and financial inclusion from a digital perspective. The study empirically analysed the short and long-run cointegration between institutional quality and digital financial inclusion in EMDEs by using panel autoregressive distributed lag (ARDL) as the main estimation technique. Findings from the study revealed that institutional quality has a positive effect on digital financial inclusion in the long run but not in the short run. The third empirical study investigated the effect of digital financial inclusion on inclusive growth and poverty in EMDEs. Providing underserved individuals and businesses with access vi to financial services and products through technology and innovation empowers them, increases inclusive growth and alleviates poverty. Nonetheless, there is limited research on the effect of digital financial inclusion on poverty through the intervention of inclusive growth in the existing literature. The System-GMM results revealed that digital financial inclusion has a positive and significant effect on inclusive growth in EMDEs at a 10% significance level. The findings also highlight that inclusive growth has a negative and significant effect on poverty in EMDEs at a 5% significance level.