Can Digitalization Foster Sustainable Financial Inclusion? Opportunities for Both Banks and Vulnerable Groups

Abstract

Financial inclusion is a crucial link in achieving the Sustainable Development Goals (SDGs). Strengthening the capability of financial institutions to provide inclusive financial services can help to narrow the inequality gap and increase access to opportunities. Digitalization, with its competitive advantages and rapid growth, may be a powerful tool to foster financial inclusion and sustainable development. This paper examines the effects of bank digitalization on sustainable financial inclusion and explores two underlying incentive mechanisms in banks: profit driven and risk aversion. We construct a basic model and a mechanism model and exploit a nonlinear attempt, heterogeneous estimation as well as supplementary variable and instrument variable methods for a robustness test. The results of the basic model demonstrate that bank digitalization has significant positive effects on financial inclusion and the current financial inclusive effects are sustainable. The mechanism models designed as the mediation effect panel model suggest that digitalization enables banks to expand the business probability frontier of profit-driven behavior and pursuit of credit portfolio diversity in risk aversion behavior, thereby promoting sustainable financial inclusion. As a result of digitalization, vulnerable groups can benefit from sustainable financial inclusion, while financial inclusion feeds back into banks’ sustainable development. This paper conforms to the trend of the development of digitalization and provides theoretical and empirical support for banks to build digitalization and realize sustainable financial inclusion, which contributes to the “triple-win” financial ecology for improving banks’ performance, increasing the rights of vulnerable groups and promoting sustainable development throughout society.

FinTechs Contribution to Sustainable Development

“…Authors conclude that FinTechs have a huge potential to support SDGs achievement, but they analyse their role differently. Some papers refer to selected SDGs as financial inclusion (Ferrata, 2019;Le et al, 2019;Arner et al, 2020;Gálvez-Sánchez et al, 2021;Chu et al, 2023), the role and potential of a particular technology (Jiang et al, 2022;Dziatkovskii et al, 2022;Cao & nguyen, 2023) or investments (Chueca vergara & Ferruz Agudo, 2021;Siemionek-Ruskań, Lepczyński & Fanea-Ivanovici, 2022;Kurnoga et al, 2022). It is necessary to mention that a considerable amount of literature has focused on innovative financial tools such as crowdfunding, green bonds, social bonds, and catastrophe bonds, which were not the subject of this research.…”