The impact of digital financial inclusion on banking sector stability: evidence from developing countries

Abstract

The research explores the transformative impact of Digital Financial Inclusion on banking sector stability in developing countries, where advanced technologies reshape financial services. With a focus on FinTech, E-wallets, and digital transactions, the study addresses a critical gap in the existing literature by examining the impact of digital Financial Inclusion indicators, such as ATMs and mobile money accounts, on developing countries banking stability. This study contributes valuable knowledge to policymakers and financial professionals in a rapidly evolving digital era. Employing data from 36 developing nations and covering the period of 2011 to 2017, the research establishes a link between digital Financial Inclusion and enhanced banking stability. Z-score is used to measure financial stability, and ATMs and mobile money accounts are used to measure digital financial inclusion, covering the outreach and usage metrics. Macroeconomic variables like gross domestic product and inflation are included to capture broader economic influences on banking stability. A panel regression was used to analyse the data. The study found that digital Financial Inclusion proxies significantly impact the banking sector's stability. The attention for enhancing digital financial services in improving and maintaining the banking sector stability is reconfirmed from this study based on a larger data set of developing countries.