Financial Technology and Poverty Reduction: The Role of Financial Inclusion in Asian Developing Countries

ABSTRACTThis study delves into the relationship between financial technology (fintech) development and poverty reduction in Asia, focusing on the intermediary role of financial inclusion. Examining data from 12 developing Asian countries spanning from the fourth quarter of 2004–2017 and considering variables such as gross domestic product, trade openness, and the rule of law, the study employs a two‐step methodology. Firstly, it utilizes principal component analysis to construct indices for financial inclusion, poverty, and economic factors. Subsequently, cross‐sectional modeling is conducted using strongly balanced panel data in Stata to explore the relationships. The findings consistently show that increased financial inclusion correlates with lower poverty levels, indicating that inclusive financial systems positively impact poverty reduction. The study identifies financial inclusion as a crucial mediator between financial technology and poverty. It underscores the significance of financial inclusion in mediating the relationship between fintech and poverty reduction, shedding light on the evolving dynamics of fintech advancements and their implications for poverty alleviation. Furthermore, the research reveals the intricate interplay between economic factors, such as changes in gross domestic product, trade openness, and the rule of law, and their influence on the relationship between financial inclusion and poverty reduction. The study's originality lies in its contribution to the ongoing discourse on measuring poverty and financial inclusion, particularly in Asia. By creating an index and employing panel data regression modeling on a large data set, the study extends previous research on poverty levels in Asian countries. Moreover, it highlights the significant roles of mobile penetration, Internet usage, and financial inclusion in the nexus between financial access and poverty reduction. It provides insights relevant to policymakers, particularly in the context of development plans and competitive advantages in regions like Saudi Arabia's Hai'l.