Digital financial inclusion and income inequality in the Global South: a structural analysis of credit distribution and economic disparities

This paper examines how the relationship between digital financial inclusion (DFI) and income inequality varies with the sectoral distribution of credit. While existing research treats DFI mainly as an access-expanding technological innovation, less attention has been paid to how credit allocation relates to its distributional implications. Focusing on the Global South, the analysis uses an unbalanced four-wave panel covering 32 countries from the Global Findex database and estimates random-effects models with panel-corrected standard errors. The findings indicate that DFI is generally associated with lower income inequality, though this relationship varies depending on the structure of credit distribution. Household-oriented lending is linked to higher inequality, whereas SME-oriented credit is associated with more favourable distributional outcomes. These relationships are robust across the Gini coefficient and Palma ratio. Overall, the findings suggest that digital financial access alone is insufficient for inclusive outcomes; its distributional implications depend on how credit is allocated.