Title: The Heterogeneous Effects of Digital Financial Inclusion on Poverty and Inequality: A Micro-Macro Panel Analysis from Developing Economies
Authors: Mary Yusuf Abdul, Saheed Zakaree, Duru Ernest Ejikeme
Volume: 10
Issue: 4
Pages: 151-161
Publication Date: 2026/04/28
Abstract:
This study investigates the differential impact of financial inclusion, both traditional and digital, on poverty and income inequality across 42 developing economies. Moving beyond macro-level aggregates, we construct a novel micro-macro panel dataset by harmonizing individual-level Global Findex data with country-level institutional and economic indicators from 2011 to 2021. Employing a two-stage instrumental variable approach and panel fixed effects models with Driscoll-Kraay standard errors, we find that while traditional financial inclusion (bank account ownership) has a modest but significant effect on reducing poverty depth, digital financial inclusion (mobile money and digital payments) exhibits a more substantial impact, particularly in Sub-Saharan Africa and fragile states. However, the results reveal a non-linear relationship with inequality: digital finance reduces inequality only in environments with robust consumer protection regulations; in weak institutional settings, it exacerbates the digital divide, leading to a Kuznets-like effect for digital finance. The study introduces a novel mechanism, financial resilience as measured by the ability to cope with unexpected shocks, as a primary channel through which digital inclusion reduces transient poverty. We further identify that the impact is highly heterogeneous, with women and rural dwellers gaining disproportionately from digital payment platforms compared to traditional banking. The findings underscore that digital finance is not a panacea; its poverty-reducing effects are contingent upon complementary institutional infrastructure, particularly regulatory quality and telecommunications infrastructure. We derive critical policy implications for central banks and policymakers aiming to leverage fintech for Sustainable Development Goal 1 (SDG 1).