The rise of digital finance in India: Financial inclusion or debt trap? Evidence from the Global Findex surveys, 2021–2024
Keywords:
Digital finance; Financial inclusion; Household debt; Debt trap; Fintech; IndiaAbstract
Both sides of the Indian digital finance revolution – financial
inclusion and over-indebtedness – are analysed in this paper.
Based on pooled cross-sectional data (n = 6,000) from the
2021 and 2025 rounds of the World Bank Global Findex
survey for India, weighted probit models of credit market
engagement, borrowing related to consumption, and
financial distress are estimated. People who use digital
payments are 7.4 percentage points more likely to borrow
from financial institutions and 4.9 percentage points more
likely to take out loans via a mobile phone. Digital finance
users are also more likely to borrow for consumption: the
probability of buying household food on credit is 9.6
percentage points higher and that of borrowing for medical
purposes 10.2 percentage points higher. The distress findings
are double-edged. Digital payment use is associated with
lower unconditional financial fragility, consistent with a
resilience benefit; yet it is associated with a 8.2 percentage
point higher probability of debt-stress, defined as being a
borrower who would find it very difficult or impossible to
raise emergency funds, and this association is significantly
stronger among the poorest 40% and rural adults.
Instrumental variable estimates using mobile phone
ownership support these results. The findings imply that
India's digital financial inclusion agenda must be paired with
digital financial literacy and borrower protection, particularly
for vulnerable groups.
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