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

Author

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  • 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
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    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.

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