DIGITAL FINANCIAL INCLUSION AND BANK STABILITY IN A DUAL BANKING SYSTEM: DOES FINANCIAL LITERACY MATTER?
This study examines the relationship between digital financial inclusion (DFI), financial literacy, and stability of conventional and Islamic banks across 15 countries from 2011 to 2020. The findings show that DFI significantly enhances the stability of conventional banks, particularly through incre...
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| Format: | Article |
| Language: | English |
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Bank Indonesia
2025-02-01
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| Series: | Journal of Islamic Monetary Economics and Finance |
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| Online Access: | https://jimf-bi.org/index.php/JIMF/article/view/2650 |
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| author | Hasanul Banna |
| author_facet | Hasanul Banna |
| author_sort | Hasanul Banna |
| collection | DOAJ |
| description | This study examines the relationship between digital financial inclusion (DFI), financial literacy, and stability of conventional and Islamic banks across 15 countries from 2011 to 2020. The findings show that DFI significantly enhances the stability of conventional banks, particularly through increased customer engagement with digital financial services, improving asset quality and reducing risks. In contrast, the relationship between DFI and stability of Islamic banks is either insignificant or negative, which may be attributed to Shariah compliance requirements, product mismatches, and competition from conventional banks and FinTech firms. Furthermore, while DFI boosts stability in conventional banks, it also exposes them to potential risks such as digital bank runs, as seen in the case of Silicon Valley Bank (SVB) in 2023. Additionally, high financial literacy positively interacts with DFI to boost the stability of conventional banks but has a negative impact on Islamic banks. Arguably, financially literate customers may resist digital services that do not fully meet Islamic principles. The results highlight the need for tailored strategies in Islamic banking, including the development of Shariah-compliant digital products, enhanced financial literacy programs, and more robust risk management frameworks to mitigate vulnerabilities like digital bank runs and improve stability in the sector. |
| format | Article |
| id | doaj-art-14610dd7a36744729fc233a5916e3803 |
| institution | DOAJ |
| issn | 2460-6146 2460-6618 |
| language | English |
| publishDate | 2025-02-01 |
| publisher | Bank Indonesia |
| record_format | Article |
| series | Journal of Islamic Monetary Economics and Finance |
| spelling | doaj-art-14610dd7a36744729fc233a5916e38032025-08-20T02:40:48ZengBank IndonesiaJournal of Islamic Monetary Economics and Finance2460-61462460-66182025-02-01111639010.21098/jimf.v11i1.26502650DIGITAL FINANCIAL INCLUSION AND BANK STABILITY IN A DUAL BANKING SYSTEM: DOES FINANCIAL LITERACY MATTER?Hasanul Banna0Manchester Metropolitan University, United Kingdom, and Miyan Research Institute, International University of Business Agriculture and Technology, Dhaka, BangladeshThis study examines the relationship between digital financial inclusion (DFI), financial literacy, and stability of conventional and Islamic banks across 15 countries from 2011 to 2020. The findings show that DFI significantly enhances the stability of conventional banks, particularly through increased customer engagement with digital financial services, improving asset quality and reducing risks. In contrast, the relationship between DFI and stability of Islamic banks is either insignificant or negative, which may be attributed to Shariah compliance requirements, product mismatches, and competition from conventional banks and FinTech firms. Furthermore, while DFI boosts stability in conventional banks, it also exposes them to potential risks such as digital bank runs, as seen in the case of Silicon Valley Bank (SVB) in 2023. Additionally, high financial literacy positively interacts with DFI to boost the stability of conventional banks but has a negative impact on Islamic banks. Arguably, financially literate customers may resist digital services that do not fully meet Islamic principles. The results highlight the need for tailored strategies in Islamic banking, including the development of Shariah-compliant digital products, enhanced financial literacy programs, and more robust risk management frameworks to mitigate vulnerabilities like digital bank runs and improve stability in the sector.https://jimf-bi.org/index.php/JIMF/article/view/2650digital financial inclusion, bank stability, financial literacy, dual-banking. |
| spellingShingle | Hasanul Banna DIGITAL FINANCIAL INCLUSION AND BANK STABILITY IN A DUAL BANKING SYSTEM: DOES FINANCIAL LITERACY MATTER? Journal of Islamic Monetary Economics and Finance digital financial inclusion, bank stability, financial literacy, dual-banking. |
| title | DIGITAL FINANCIAL INCLUSION AND BANK STABILITY IN A DUAL BANKING SYSTEM: DOES FINANCIAL LITERACY MATTER? |
| title_full | DIGITAL FINANCIAL INCLUSION AND BANK STABILITY IN A DUAL BANKING SYSTEM: DOES FINANCIAL LITERACY MATTER? |
| title_fullStr | DIGITAL FINANCIAL INCLUSION AND BANK STABILITY IN A DUAL BANKING SYSTEM: DOES FINANCIAL LITERACY MATTER? |
| title_full_unstemmed | DIGITAL FINANCIAL INCLUSION AND BANK STABILITY IN A DUAL BANKING SYSTEM: DOES FINANCIAL LITERACY MATTER? |
| title_short | DIGITAL FINANCIAL INCLUSION AND BANK STABILITY IN A DUAL BANKING SYSTEM: DOES FINANCIAL LITERACY MATTER? |
| title_sort | digital financial inclusion and bank stability in a dual banking system does financial literacy matter |
| topic | digital financial inclusion, bank stability, financial literacy, dual-banking. |
| url | https://jimf-bi.org/index.php/JIMF/article/view/2650 |
| work_keys_str_mv | AT hasanulbanna digitalfinancialinclusionandbankstabilityinadualbankingsystemdoesfinancialliteracymatter |