A master’s thesis in cooperation with the Chair of Strategy and Organization at the Technical University Munich.

Supervisor: Prof. Dr. Isabell Welpe

Chair of Strategy & Organization

Student: Rohan Arshad

Introduction

Financial inclusion has been identified by the World Bank as a major enabler for the purpose of reduction in wealth inequality and it can serve as a single most important factor that can lead to high economic output for the developing nations. It is very important for the nations that want to take advantage of financial inclusion that they must develop and have strategies that promote access to financial services through digitization with proper education, by building better telecommunication infrastructure and the most importantly have the capacity in the financial regulators to make the right reforms that can enable the effects of financial inclusion on the country’s economy.

Digitization has played a major role in the modernization of economies. It has helped the countries to bring their population outside of poverty by focusing on indicators that have direct impact in reducing poverty. Through digitization, countries are able to gather huge amount of data and after analyzing that huge data source, they effectively manage the resources to get better efficiencies in the economy.

Brief description of the Study

Usage and access are two most important dimensions of financial inclusion. Therefore, the study has looked into various factors of digitization that can have impact on access and usage of financial inclusion. For measuring access, study included number of total Bank Branches (PER 100,000 Adults) and usage is measured through by using numbers of Borrowers from commercial banks (per 1,000 adults).

New Technologies are changing almost each and every aspect of human life. It is also changing the way financial services are delivered. Digitization is one of the most important factor in increasing the scope of financial services. Therefore, it is very important that financial services providers must establish digital capabilities that can go hand in hand in solving the issues of financial inclusion. For that, certain indicators are required to be identified, that must be present and improved, to leverage the scope of digitization in order to reach out to financially excluded population of the world. These indicators have been found and associated with digitization of economies and various researchers have also tried to come up with different components of digitization in an economy. All these studies have mutual conclusion on type of indicators that are mostly common for digitization (Callorda et al.,2014) and (Asli Demirguc-Kunt et al., 2017).

This research will gather data that are considered in this study from the world bank data bank. There are indicators that are taken as a proxy for digitization which are Mobile Cellular Subscription (MCS), Fixed Broadband Subscription (FBS), Number of Internet Users (IU) (% of population), Net Information and Communication Technology (ICT) Expenditure, and Literacy Rate (LR) % of people ages 15 and above, and indicators for Financial Inclusion which are the Total available Commercial Banks Branches per 100,000 adults and the number of Borrowers from Commercial banks per 1,000 adults.

Theoretical Framework of the Study

Research Methodology

In order to better distinguish the research through the use of hypothesis the research design is based on explanatory (Secondary) research data so that the nature and direction of relationships between and among the variables can be identified. They will be observed with cross-sectional analysis over 12 years (2009-2020) so that the prevailing characteristics of the data at a certain point can be captured. Research Methodology is based on following steps,

Research Findings

Correlation with Dependent Variable

Conclusion

Impact of Digitization on Total Commercial Banks Branches

• The analysis explains that high literacy rate may cause better financial inclusion and policies should be make in order to encourage the general population to get education and knowledge in order to be able to take advantages of benefits of financial services.
• The analysis was done between the number of Commercial Banks Branches and number of internet users. The result was found to be statistically insignificant. Therefore this is nit a god indicator for this proxy of financial inclusion.
• Moving to Fixed Broadband Subscription and Mobile Cellular Subscriptions which both measure the penetration of internet in the study and served as an indicator for digitization. They both found to be positively related with the number of commercial banks.
• Net expenditure on Internet and Communication Technology (ICT) by the countries in the analysis. This was also found to be positively related with the number of commercial bank branches.

Impact of Digitization on Number of Borrowers from Commercial banks

• With the number of Borrowers from Commercial banks, we found that literacy rate here also positively associated with the financial inclusion.
• Number of internet users are also found to be positively related with number of borrowers in the analysis which shows that it is a good indicator for digitization
• Fixed broadband Subscription and its impact on financial inclusion through number of borrowers we conclude that it is also positively linked
• Same case is with mobile cellular subscription as well because these both are indicator of internet penetration in a population, and it shows that digitization when looked through use of internet, may result in better financial inclusion
• Net expenditure on Internet and Communication Technology we reached to the similar conclusion that there is a positive relationship present here as well.

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