The impact of digital financial inclusion on energy and the environment

Abstract

To mitigate the elevated levels of economic poverty, the G20, the International Monetary Fund, and the World Bank have initiated a campaign to promote financial inclusion in developing regions. A significant number of individuals in regions like Sub-Saharan Africa (SSA) and South Asia have integrated into the financial system owing to technological advancements in financial services. Digital financial inclusion (DFI) influences economic growth, subsequently impacting energy consumption and the environment. The thesis's primary goal is to investigate how digital financial inclusion has affected energy usage and CO2 emissions in 33 SSA nations between 2004 and 2020. This thesis raises four research questions: First, what are the primary factors influencing the relationship between energy consumption, environmental developments, and digital financial inclusion in SSA countries relative to other global regions? Second, what main variables influence the connection between the shifts in energy consumption patterns in SSA countries and digital financial inclusion? Third, how can we optimise environmental sustainability optimistically while promoting digital financial inclusion? And four, what are the environmental effects of digital financial inclusion activities in SSA countries? To address these questions, this thesis is subdivided into three main parts. The first part examines the global position of the SSA region compared to other regions regarding digital financial inclusion, energy consumption, and the environment. The second and the third parts focus, respectively, on the effect of digital financial inclusion on energy consumption and CO2 emissions. A comparative methodology is employed to evaluate the advancement of sophisticated digital services and financial inclusion concerning energy consumption and environmental impact across different geographic regions. The Generalised Method of Moments was employed to assess the impact of DFI on energy consumption and environmental conditions in SSA countries. The key results include that, in terms of socioeconomic indicators and the proportion of people claiming to have a bank or financial institution account, SSA region is the least wealthy region when compared to other regions. The impact of financial inclusion, which considers the availability of financial services like the number of ATMs and the use of such services as the number of depositors, are positively associated with the energy usage and CO2 emissions. Conversely, there is a negative correlation between commercial bank borrowers and energy consumption and a positive correlation between commercial bank borrowers and CO2 emissions. The quantity of bank branches is, meanwhile, insignificant. When the interaction term between financial inclusion proxies and the number of mobile cellular is introduced, the interaction term is negative associated with energy usage and CO2 emission. The findings offer significant policy insights for policymakers, especially in encouraging the financial sector to offer “green loans” to reduce energy intensity and CO2 emissions. Incentive and regulatory measures can make sustainable projects more attractive, with tax rebates for lenders and borrowers. Low-income households should be prioritised in climate change efforts, with increased digital financial access and microfinance initiatives aimed at financing energy-efficient projects in marginalised areas.