IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i8p6727-d1124743.html

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

Author

Listed:
  • Ying Chu

    (School of Economics and Management, Beijing Jiaotong University, Beijing 100044, China)

  • Shujun Ye

    (School of Economics and Management, Beijing Jiaotong University, Beijing 100044, China)

  • Hongchang Li

    (School of Economics and Management, Beijing Jiaotong University, Beijing 100044, China)

  • Jack Strauss

    (Reiman School of Finance, University of Denver, Denver, CO 80208, USA)

  • Chen Zhao

    (School of Accounting, Southwestern University of Finance and Economics, Chengdu 611130, China)

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.

Suggested Citation

  • Ying Chu & Shujun Ye & Hongchang Li & Jack Strauss & Chen Zhao, 2023. "Can Digitalization Foster Sustainable Financial Inclusion? Opportunities for Both Banks and Vulnerable Groups," Sustainability, MDPI, vol. 15(8), pages 1-21, April.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:8:p:6727-:d:1124743
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/8/6727/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/8/6727/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Olga Kukushkina & Natalia Larionova & Julia Varlamova, 2020. "How Digital Technologies Affect Consumers’ Financial Behavior," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 128(3), pages 321-344.
    2. Ovi, Nafisa & Bose, Sudipta & Gunasekarage, Abeyratna & Shams, Syed, 2020. "Do the business cycle and revenue diversification matter for banks’ capital buffer and credit risk: Evidence from ASEAN banks," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(1).
    3. Banna, Hasanul & Kabir Hassan, M. & Rashid, Mamunur, 2021. "Fintech-based financial inclusion and bank risk-taking: Evidence from OIC countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    4. Oona Voican, 2020. "The Digital Transformation and Disruption in Business Models of the Banks under the Impact of FinTech and BigTech," Database Systems Journal, Academy of Economic Studies - Bucharest, Romania, vol. 11(1), pages 117-127.
    5. Kouladoum, Jean-Claude & Wirajing, Muhamadu Awal Kindzeka & Nchofoung, Tii N., 2022. "Digital technologies and financial inclusion in Sub-Saharan Africa," Telecommunications Policy, Elsevier, vol. 46(9).
    6. Jon Frost & Leonardo Gambacorta & Yi Huang & Hyun Song Shin & Pablo Zbinden, 2019. "BigTech and the changing structure of financial intermediation," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 34(100), pages 761-799.
    7. Rossi, Stefania P.S. & Schwaiger, Markus S. & Winkler, Gerhard, 2009. "How loan portfolio diversification affects risk, efficiency and capitalization: A managerial behavior model for Austrian banks," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2218-2226, December.
    8. Lukasz Prorokowski & Hubert Prorokowski & Georgette Bongfen Nteh, 2019. "Reviewing Pillar 2 regulations: credit concentration risk," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 27(3), pages 280-302, March.
    9. Berger, Allen N, 2003. "The Economic Effects of Technological Progress: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 141-176, April.
    10. Hongyu Li & Zhiqiang Lu & Qili Yin, 2023. "The Development of Fintech and SME Innovation: Empirical Evidence from China," Sustainability, MDPI, vol. 15(3), pages 1-14, January.
    11. Qianqian Li & Qilin Liu, 2023. "Impact of Digital Financial Inclusion on Residents’ Income and Income Structure," Sustainability, MDPI, vol. 15(3), pages 1-20, January.
    12. Dorfleitner, Gregor & Nguyen, Quynh Anh & Röhe, Michaela, 2019. "Microfinance institutions and the provision of mobile financial services: First empirical evidence," Finance Research Letters, Elsevier, vol. 31(C).
    13. Thakor, Anjan, 2020. "Corrigendum to: Fintech and Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 43(C).
    14. Borochin, Paul & Rush, Stephen, 2022. "Information networks in the financial sector and systemic risk," Journal of Banking & Finance, Elsevier, vol. 134(C).
    15. Bülbül, Dilek & Hakenes, Hendrik & Lambert, Claudia, 2019. "What influences banks’ choice of credit risk management practices? Theory and evidence," Journal of Financial Stability, Elsevier, vol. 40(C), pages 1-14.
    16. Bouwman, Harry & Nikou, Shahrokh & de Reuver, Mark, 2019. "Digitalization, business models, and SMEs: How do business model innovation practices improve performance of digitalizing SMEs?," Telecommunications Policy, Elsevier, vol. 43(9).
    17. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    18. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    19. Wei Yu & Huiqin Huang & Xinyan Kong & Keying Zhu, 2023. "Can Digital Inclusive Finance Improve the Financial Performance of SMEs?," Sustainability, MDPI, vol. 15(3), pages 1-16, January.
    20. Haishu Qiao & Meilin Chen & Yue Xia, 2018. "The Effects of the Sharing Economy: How Does Internet Finance Influence Commercial Bank Risk Preferences?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(13), pages 3013-3029, October.
    21. Paunov, Caroline & Rollo, Valentina, 2016. "Has the Internet Fostered Inclusive Innovation in the Developing World?," World Development, Elsevier, vol. 78(C), pages 587-609.
    22. Dan Luo & Man Luo & Jiamin Lv, 2022. "Can Digital Finance Contribute to the Promotion of Financial Sustainability? A Financial Efficiency Perspective," Sustainability, MDPI, vol. 14(7), pages 1-29, March.
    23. Luiz Antonio Joia & Joaquim Pedro Vasconcelos Cordeiro, 2021. "Unlocking the Potential of Fintechs for Financial Inclusion: A Delphi-Based Approach," Sustainability, MDPI, vol. 13(21), pages 1-19, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. John K. Thuranira & Mukaria H. Kimathi & Dennis K. Murithi, 2024. "Digital Banking Channels, Financial Inclusion and Commercial Bank Sustainability in Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(15), pages 164-180, November.
    2. Minu Gupta & Ravi Kiran, 2024. "Sectoral Comparison of Sustainable Digital Financial Inclusion of Women Workforce with the Mediation of Digital Banking Adoption Intention: An Empirical Analysis," SAGE Open, , vol. 14(2), pages 21582440241, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Berger, Allen N. & Boot, Arnoud W.A., 2024. "Financial intermediation services and competition analyses: Review and paths forward for improvement," Journal of Financial Intermediation, Elsevier, vol. 57(C).
    2. Gaibulloev, Khusrav & Mirzaei, Ali & Moore, Tomoe & Saad, Mohsen, 2025. "The effect of fintech financing on firm performance: Evidence from emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 103(C).
    3. Liu, Haiming & Hu, Jikong, 2025. "Bank Fintech and firm leverage adjustment speed: Evidence from China," Research in International Business and Finance, Elsevier, vol. 73(PA).
    4. Cuadros-Solas, Pedro J. & Cubillas, Elena & Salvador, Carlos & Suárez, Nuria, 2024. "Digital disruptors at the gate. Does FinTech lending affect bank market power and stability?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    5. Khan, Habib Hussain & Qureshi, Fiza & Jamali, Dima, 2025. "Digital disruption in financing: Are fintech and bigtech credit reshaping corporate access to capital?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 103(C).
    6. Obioma Chidiebere Obijama & Oluwatoyin Abidemi Somoye & Huseyin Ozdeser, 2025. "Through what channels does financial technology (FinTech) impact financial development? A systematic literature review," SN Business & Economics, Springer, vol. 5(12), pages 1-31, December.
    7. Drago, Carlo & Minnetti, Francesco & Di Nallo, Loris & Manzari, Alberto, 2025. "Uncovering patterns of fintech behavior in Italian banks: A multidimensional statistical analysis," Research in International Business and Finance, Elsevier, vol. 73(PA).
    8. Vuković, Darko B. & Hassan, M. Kabir & Kwakye, Bernard & Febtinugraini, Armike & Shakib, Mohammed, 2024. "Does fintech matter for financial inclusion and financial stability in BRICS markets?," Emerging Markets Review, Elsevier, vol. 61(C).
    9. Zeynep Alraqeb & Peter Knaack & Camille Macaire, 2022. "Does FinTech Promote Entrepreneurship? Evidence from China," Working papers 895, Banque de France.
    10. Guo, Junyan & Fang, Hanqing & Liu, Xuexin & Wang, Cizhi & Wang, Yuan, 2023. "FinTech and financing constraints of enterprises: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    11. Minghua Chen & Qinru Chu & Tengwen Zhang & Qian Li & Jianxu Liu & Woraphon Yamaka, 2023. "The Structural Causes and Trend Evolution of Imbalance and Insufficiency of Development of Digital Inclusive Finance in China," Sustainability, MDPI, vol. 15(13), pages 1-22, June.
    12. Rapih, Subroto & Susantiningrum, & Wahyono, Budi & Borges, Jorge Tavares & Phongsounthone, Somesanook, 2023. "Financial openness and fintech credit," Finance Research Letters, Elsevier, vol. 56(C).
    13. Beck, Thorsten & Gambacorta, Leonardo & Huang, Yiping & Li, Zhenhua & Qiu, Han, 2022. "Big techs, QR code payments and financial inclusion," CEPR Discussion Papers 17297, C.E.P.R. Discussion Papers.
    14. Cavoli, Tony & Khan, Isma & Wali Ullah, G.M., 2025. "Social capital and FinTech lending: international evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 105(C).
    15. Sujeeth Ungratwar & Dipasha Sharma & Satish Kumar, 2025. "Mapping the digital banking landscape: a multi-dimensional exploration of fintech, digital payments, and e-wallets, with insights into current scenarios and future research," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-22, December.
    16. Vaneet Bhatia & Sankarshan Basu & Subrata Kumar Mitra & Pradyumna Dash, 2018. "A review of bank efficiency and productivity," OPSEARCH, Springer;Operational Research Society of India, vol. 55(3), pages 557-600, November.
    17. Sun, Xiaoyan & Xie, Xuanli, 2024. "How does digital finance promote entrepreneurship? The roles of traditional financial institutions and BigTech firms," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    18. Li, Yawen & Xia, Yufei & Sun, Zongting & Sun, Naili, 2025. "Does digital transformation affect systemic risk? Evidence from the banking sector in China," International Review of Financial Analysis, Elsevier, vol. 102(C).
    19. Cariolle, Joël, 2021. "International connectivity and the digital divide in Sub-Saharan Africa," Information Economics and Policy, Elsevier, vol. 55(C).
    20. Kowalewski, Oskar & Pisany, Paweł, 2022. "Banks' consumer lending reaction to fintech and bigtech credit emergence in the context of soft versus hard credit information processing," International Review of Financial Analysis, Elsevier, vol. 81(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:8:p:6727-:d:1124743. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.