Financial Technology and Financial Inclusion in Rwanda 2011-2024: Long- and Short-Run evidence from a PCA-ARDL Approach

Rwanda's digital financial services (DFS) revolution has increased access to finance, yet the extent of the increase in and persistence of financial inclusion from FinTech development is not clear. The study has looked at the contribution of FinTech to financial inclusion in Rwanda based on 56 quarterly observations spanning the period of 2011 to 2024. The study used a quantitative, longitudinal, explanatory design at the national level for data on the development of FinTechs, financial inclusion and macroeconomic conditions. This study used Principal Component Analysis (PCA) to create the Financial Inclusion Index (FII) and Financial Tech Development Index (FTDI), and Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) to estimate the short- and long-run relationships. The results showed that all the indicators of FinTech positively affected the FTDI including mobile money transaction intensity, digital payment transactions and retail e-payment value-to-GDP. The ARDL bounds test results indicated that there is long run relationship between the development of FinTech and financial inclusion (F = 13.6891). The short-run result suggests positive and statistically significant relationship between financial inclusion and FinTech development (β = 0.2834, p = 0.0043), suggesting that FinTech development was moving toward the long-run equilibrium level of financial inclusion (-0.1946). The development of FinTechs in Rwanda is seen to have a positive effect on financial inclusion, apart from the lending interest rates, according to the study. It recommends greater use of digital financial services, expanding payment infrastructure and agent networks, making credit more affordable, and improving the digital financial literacy and consumer protection.