Effect of digital financial innovations on financial inclusion in Uganda

Abstract

The study examines the effect of digital financial innovations on financial inclusion in Uganda using secondary data from the World Bank Global Findex Data of 2021 on financial inclusion. Specifically, the study examines the extent to which mobile money services affect financial inclusion, assesses the effect of Internet banking on financial inclusion, and examines the impact of Automated Teller Machines on financial inclusion. The study modelled other socio–demographic characteristics such as age, gender, education, employment and income quintile. The study employs a simple probit model to study the effect of digital financial innovations on financial inclusion. The study finds that access to mobile money services, Automated teller Machines, and Internet banking services are significant determinants of financial inclusion. Access to these financial innovations affects an individual’s usage of financial services. For instance, Mobile phones, ATMs and Internet banking access tend to induce the usage of financial services by providing financial services to the unbanked population in areas where operating banks are not accessible. Findings also indicate that education, employment and income quintile play a significant role in influencing an individual’s level of financial inclusion, as those with formal education are more likely to have access to financial education and have higher financial literacy levels, which can help enhance decision making relating to financial issues such as savings or borrowing. Other demographic factors, such as age and gender, do not significantly affect financial inclusion. The study recommends that telecom operators and the banking sector should constantly provide digital financial services since they all significantly deepen financial inclusion in Uganda.