Digital Financial Inclusion and Bank Competition - An Impact on Bank Stability in India

Dr. Kirti Singh

doi:https://doi.org/10.17492/jpi.mudra.v10i2.1022303

Submit Manuscript Login / Register Subscribe

Home Page

Editorial Board Members

Mission, Aims & Scope

Current Issue

Digital Financial Inclusion and Bank Competition - An Impact on Bank Stability in India

Kirti Singh

Vol 10 , Issue 2 , July - December 2023 | Pages: 38-54 | Research Paper

Article has been added to the cart.View Cart (0)

https://doi.org/10.17492/jpi.mudra.v10i2.1022303

Published Online: December 10, 2023

Author Details ( * ) denotes Corresponding author

1. * Kirti Singh, Assistant Professor, Department of Commerce, Faculty of Commerce and Business , Delhi School of Economics, University of Delhi, Delhi, Delhi, India (drkirtisingh19@gmail.com)

The rapid growth of digital finance has challenged traditional financial services while offering opportunities for low-income communities and small businesses. Digital financial inclusion can help countries achieve financial inclusion and sustainable development goals and boost economic growth. This research investigates the role of digital financial inclusion in bank stability. It utilises the two-step System generalised Method of Moments to examine its effects and bank competition on bank stability in sub-Saharan India from 2016-2022. The study employs metrics such as z-score, HHI, non-performing loans, and a digital financial inclusion index. The results reveal a strong link between digital financial inclusion and bank stability and a connection between digital financial inclusion and bad loans. However, bank competition negatively affects stability. Policymakers should promote digital financial literacy, increase bank competitiveness, and decrease non-performing loans and insolvency to maintain bank stability, emphasising the importance of fostering competition and integrating financial literacy into digital financial inclusion efforts.

Keywords

Bank; Stability; Competition; Digital; Financial Inclusion

Avom, D., Bangaké, C., & Ndoya, H. (2023). Do financial innovations improve financial inclusion? Evidence from mobile money adoption in Africa. Technological Forecasting and Social Change, 190. Retrieved from https://doi.org/10.1016/j.techfore.2023.122451
Beck, T., Demirguc-Kunt, A., & Martinez Peria, M. S. (2007). Reaching out: Access to and use of banking services across countries. Journal of Financial Economics, 85(1), 234–266. Retrieved from https://doi.org/10.1016/j.jfineco.2006.07.002
Chinoda, T., & Kapingura, F. M. (2023a). The Impact of digital financial inclusion and bank competition on bank stability in sub-Saharan Africa. Economies, 11(1). Retrieved from https://doi.org/10.3390/economies11010015
Ebong, J., & George, B. (2021). Financial inclusion through digital financial services (DFS): A study in Uganda. Journal of Risk and Financial Management, 14(9), 393. Retrieved from https://doi.org/10.3390/jrfm14090393
Ferrata, L. (2019). Digital financial inclusion - An engine for “leaving no one behind.” Public Sector Economics, 43(4), 445–458. Retrieved from https://doi.org/10.3326/pse.43.4.6
Gomber, P., Koch, J. A., & Siering, M. (2017). Digital Finance and FinTech: Current research and future research directions. Journal of Business Economics, 87(5), 537–580. Retrieved from https://doi.org/10.1007/s11573-017-0852-x
Hannig, A., & Jansen, S. (2010). ADBI working paper series financial inclusion and financial stability: Current policy issues Asian Development Bank institute. Retrieved from https://www.adb.org/sites/default/files/publication/156114/adbi-wp259.pdf
Jayasekara, S. D. (2020). Deficient regimes of anti-money laundering and countering the financing of terrorism: Agenda of digital banking and financial inclusion. Journal of Money Laundering Control, 24(1), 150–162. Retrieved from https://doi.org/10.1108/JMLC-04-2020-0035
Jolliffe, S. (2002). Principal component analysis, Second Edition. Retrieved from http://cda.psych.uiuc.edu/statistical_learning_course/Jolliffe%20I.%20Principal%20Component%20Analysis%20(2ed.,%20Springer,%202002)(518s)_MVsa_.pdf
Khera, P., Ng, S., Ogawa, S., & Sahay, R. (2022). Measuring digital financial inclusion in emerging market and developing economies: A new index. Asian Economic Policy Review, 17(2), 213–230. John Wiley and Sons Inc. Retrieved from https://doi.org/10.1111/aepr.12377
Khera, P., Ng, S., Ogawa, S. & Sahay, R. (2021). Measuring digital financial inclusion in emerging market and developing economies: A new index. Asian Economic Policy Review, 17(2), 213-230.
Le, T. T., Dan, N. D. L., Nguyen, T. D. T., Vu, T. S., & Tran, M. D. (2019). Determinants of financial inclusion: Comparative study of Asian countries. Asian Economic and Financial Review, 9(10), 1107–1123. Retrieved from https://doi.org/10.18488/journal.aefr.2019.910.1107.1123
Li, Y., Sun, G., Gao, Q., & Cheng, C. (2023). Digital financial inclusion, financial efficiency and green innovation. Sustainability (Switzerland), 15(3). Retrieved from https://doi.org/10.3390/su15031879
Liu, G., Huang, Y., Huang, Z., Anthopoulou, T., Dahlström, K., & Tunón, H. (2014). Determinants and mechanisms of digital financial inclusion development: Based on urban-rural differences. Retrieved from https://doi.org/10.3390/agronomy
Lutfi, A., Al-Okaily, M., Alshirah, M. H., Alshira’h, A. F., Abutaber, T. A., & Almarashdah, M. A. (2021). Digital financial inclusion sustainability in Jordanian context. Sustainability, 13(11). Retrieved from https://doi.org/10.3390/su13116312
Mhlanga, D. (2020). Industry 4.0 in finance: the impact of artificial intelligence (AI) on digital financial inclusion. International Journal of Financial Studies, 8(3), 1–14. Retrieved from https://doi.org/10.3390/ijfs8030045
Naumenkova, S., Mishchenko, S., & Dorofeiev, D. (2019). Digital financial inclusion: Evidence from Ukraine. Investment Management and Financial Innovations, 16(3), 194-205. LLC CPC Business Perspectives. Retrieved from https://doi.org/10.21511/imfi.16(3).2019.18
Nguyen, T. D., & Du, Q. L. T. (2022a). The effect of financial inclusion on bank stability: Evidence from ASEAN. Cogent Economics and Finance, 10(1). Retrieved from https://doi.org/10.1080/23322039.2022.2040126
Okello C. B. G., Yourougou, P., & Munene, J. C. (2019a). Digital financial innovations in the twenty-first century. Journal of Economic and Administrative Sciences, 36(3), 185–203. Retrieved from https://doi.org/10.1108/jeas-01-2019-0007
Radcliffe, D., Voorhies, R., & Gates, F. M. (2012). A digital pathway to financial inclusion. Retrieved from http://ssrn.com/abstract=2186926
Salman, D., & Ismael, D. (2023). The effect of digital financial inclusion on the green economy: The case of Egypt. Journal of Economics and Development. Retrieved from https://doi.org/10.1108/jed-05-2022-0087
Saraswati, B. D., Maski, G., Kaluge, D., & Sakti, R. K. (2020a). The effect of financial inclusion and financial technology on effectiveness of the Indonesian monetary policy. Business: Theory and Practice, 21(1), 230–243. Retrieved from https://doi.org/10.3846/BTP.2020.10396
Saraswati, B. D., Maski, G., Kaluge, D., & Sakti, R. K. (2020b). The effect of financial inclusion and financial technology on effectiveness of the Indonesian monetary policy. Business: Theory and Practice, 21(1), 230–243. Retrieved from https://doi.org/10.3846/BTP.2020.10396
Thathsarani, U., Wei, J., & Samaraweera, G. (2021). Financial inclusion’s role in economic growth and human capital in South Asia: An econometric approach. Sustainability (Switzerland), 13(8). Retrieved from https://doi.org/10.3390/su13084303
Vyas, V., & Jain, P. (2021). Role of digital economy and technology adoption for financial inclusion in India. Indian Growth and Development Review, 14(3), 302–324. Retrieved from https://doi.org/10.1108/IGDR-01-2020-0009
Xue, L., & Zhang, X. (2022). Can digital financial inclusion promote green innovation in heavily polluting companies? International Journal of Environmental Research and Public Health, 19(12). Retrieved from https://doi.org/10.3390/ijerph19127323
Ye, Y., Pu, Y., & Xiong, A. (2022). The impact of digital finance on household participation in risky financial markets: Evidence-based study from China. PLoS ONE, 17(4 April). Retrieved from https://doi.org/10.1371/journal.pone.0265606
Zhou, Z., Zhang, Y., & Yan, Z. (2022). Will digital financial inclusion increase chinese farmers’ willingness to adopt agricultural technology? Agriculture (Switzerland), 12(10). Retrieved from https://doi.org/10.3390/agriculture12101514
Zou, F., Li, T., & Zhou, F. (2021). Does the level of financial cognition affect the income of rural households? Based on the moderating effect of the digital financial inclusion index. Agronomy, 11(9). Retrieved from https://doi.org/10.3390/agronomy11091813