Digitalisation for Inclusive Finance and Sustainability

Digitalisation is among the most influential technologies that permeates almost every aspect of human endeavour. In India, as in many parts of the world, it has been heralded as the silent revolution, eclipsing all previous ones of this genre. Go digital has become the way to go. In the area of banking and finance, in particular, its diffusion has been truly remarkable, displacing footfalls and brick-and-mortar with virtual reality. Its advent, particularly since the 2010s, is correlated with the lifting of more than a billion people worldwide from abject exclusion to access to at least the basic financial services.

Yet, it is worthwhile to ask: is it living up to the full transformative capacity that it has been credited with? Has it been successful in leveraging humanity beyond just financial inclusion to financial empowerment? What is its performance appraisal in respect of reduction of poverty, hunger, inequality – including of economic conditions; opportunity; and gender – and building up climate resilience, or in essence, in improving the quality of human existence? It is useful to ponder on these vexing issues even as we tap, swipe and QR-code our way through the ordinary business of life.

Digital Financial Inclusion: The Track Record
Digital financial inclusion involving the use of digital technology—mobile phones; internet banking; fintech—to provide affordable, secure, and accessible financial services such as payments, savings, credit, and insurance to underserved, low-income, and rural populations has been hailed worldwide as the means of bringing universal access to financial services within reach. 

Global leaders, financial sector standard-setting bodies, multilateral institutions and the private sector are committed to it as an integral element of the global partnership for financial inclusion agenda. In 2025, the G20 under the presidency of South Africa produced policy recommendations for moving from financial access to usage, recognising digital technologies as central to this initiative.

In 2025, the World Bank reported how the internet and mobile money accounts accessible on basic phones to bank-account-linked wallets on smartphones are revolutionising financial inclusion in every region of the world. More and more people are able to access digital financial services that have become more affordable than alternatives that are not digitally accessible. This has brought benefits such as the ability to make daily savings deposits, manage loan disbursements and repayments using an app, and to purchase pay-as-you-go renewable electricity directly from a phone.

Globally, nearly 80% of adults have an account with a bank or financial institution, up from 74% in 2021. Ownership of accounts has gone up by 5 percentage points since 2021. In low and middle-income countries, the rise in account ownership is even faster, driven up by mobile money accounts: 86% of adults own a mobile phone; 70% of the global population uses smartphones to get online, although in sub-Saharan Africa and South Asia, basic phones with no internet access still play an important role.

Gender gaps in account ownership have narrowed significantly since 2021; they were already small in mobile phone ownership. As a result, formal saving is rising strongly, with 40% of adults in low- and middle-income countries saving formally in accounts — 16 percentage points higher than in 2021. Also, 61% of adults or 82% of account owners make or receive digital payments.

While expanding financial access is the necessary condition for financial inclusion, it has not been matched by financial services usage, the sufficient condition. While the proportion of adults making or receiving digital payments has been increasing, with sub-Saharan Africa and South Asia showing the fastest rise, owners using their accounts has remained steady. This suggests that recent gains reflect broader access rather than deeper engagement.

The adoption of digital merchant payments and online shopping varies significantly by region. Cash remains dominant in utility bill payments. In both sub-Saharan Africa and South Asia, borrowing is dominated by informal sources, especially amongst women, poorer households, rural residents, and those outside the formal labour force. Savings behavior has showed recent signs of recovery, but will it sustain, given that it has followed a long decline between 2014 and 2021? Insurance remains underutilised, with significant disparities in coverage. Non-life insurance outpaces life insurance.

Clearly, not everyone has benefited equally. Adults without an account who also do not own any type of mobile phone account for 31% of the population in low- and middle-income economies, and about 50% in South Asia and Sub-Saharan Africa. Moreover, with rising digital financial inclusion, financial crime has risen, affecting one in five phone owners in low- and middle-income countries.

Greater account ownership and increased digital opportunities have, therefore, not yet increased overall financial health in the sense of the ability to pursue financial goals, manage financial emergencies, and feel confident about one’s finances.   

Digital Financial Inclusion and the Quality of Economic Growth
Underpinning the rapid growth of digital financial inclusion is its attributes of low cost, speedy diffusion, and cross-temporal and spatial information dissemination. Accordingly, several studies have shown that it has served as a driver for reducing poverty and fostering equitable economic growth. The channels of this relationship are manifold:

(a) reducing urban-rural divides and boosting regional income equality;

(b) empowering women and bridging the gender gap;

(c) reducing social disparities by providing marginalised groups with access to financial resources;

(d) enabling access for small businesses; and

(e) facilitating inclusive green growth for sustainable development, particularly in emerging economies.

The inferences are not unanimous, however. Some studies exploring the relationship between digital financial inclusion and equitable growth in panel data frameworks point to non-linearities and threshold effects. In other words, the impact of digital financial inclusion on inequality rises when poverty is high and the gaps are wide, but diminishes after a certain level of economic development is achieved.

Cross-country studies conducted by the World Bank also point to over-indebtedness due to easy access to digital credit. Furthermore, the lack of digital literacy and infrastructure can exacerbate existing divides. Moreover, digital infrastructure can increase carbon emissions in certain regions while aiding financial inclusion, necessitating a focus on green, sustainable technology.  In summary, the impact of digital financial inclusion on the quality of economic development is not uniform. In countries with less developed financial systems in particular, it can sometimes exacerbate gender disparities, even while promoting overall economic growth.

Effective implementation holds the key, highlighting the need to address digital literacy deficiencies and infrastructure gaps, establish compatible ongoing regulatory evolution, strong governance, and promote collaboration between governments, financial institutions, and fintech companies.

Digital Financial Inclusion and Climate Resilience
Digital financial inclusion can strengthen climate resilience for vulnerable populations by sustaining digital payments and insurance through climate events, and by helping to build savings buffers to manage climate-related risks, recover from disasters, and adapt livelihoods. It can also enable immediate, targeted government (G2P) financial support in response to climate event shocks, particularly for women, while facilitating investments in resilient infrastructure and climate-smart green technologies. Data-driven solutions can enable the tailoring of financial products.

Importantly, digital financial inclusion can play a critical role in enabling autonomous adaptation and building grassroots resilience to climate change. This is particularly pressing for low-income communities that are the least responsible for climate change emissions yet tend to be more exposed and vulnerable to their effects. By enabling the poorest and most vulnerable people to pursue their own resilience strategies, an inclusive financial system is a fundamental enabler of adaptation and an absolute necessity for a just transition. Digitalisation has a major role to play here.  

Despite this potential for climate action, digital financial services far from fulfil this role. Of the 1.4 billion adults that are estimated to remain excluded from the financial system, more than 80% of them live in the most climate vulnerable countries, many of which also have few resources, minimal infrastructure, and limited capacity to withstand and recover from climate shocks. Climatic shocks and stresses damage their meagre collateral, undermining livelihoods and weakening the income streams that pay for financial services.

At the same time, operational costs for digital service providers increase upon a climate event, forcing them to pull back from value chains and geographical areas that are particularly exposed and vulnerable to climate change in both high- and low-income countries. In fact, studies in the context of sub-Saharan Africa suggest that while digital financial inclusion may bolster immediate coping and adaptive measures, it does not sufficiently enable the deep-seated, systemic changes needed for long-term resilience.

These findings highlight the limitations of digital financial tools in driving fundamental social and economic transformation for climate resilience. They may be inadvertently fostering short-term stability at the expense of long-term climate vulnerability. Some studies have even revealed a negative effect on a household's transformative capacity, which is the ability to enact fundamental, long-term changes to a household's structure and systems to address the root causes of vulnerability, rather than simply responding to immediate crises.

Helping inclusive finance providers manage climate risk must, therefore, be a major priority, warranting a combination of insurance, blended finance solutions, credit guarantees, and other forms of risk-sharing by both public and philanthropic capital. On their part, policymakers need to incorporate digital financial inclusion policies into climate change adaptation strategies, integrating digitalisation into energy-efficient technologies investments for a better environment, while achieving the 2030 Agenda for Sustainable Development.

This is Part I of a two-part series on digitalisation by Dr Michael Debabrata Patra. The concluding part will examine the adoption of digitalisation in India.