Determinants of Digital Financial Inclusion Among Low-Income Households: Comparison Between Peninsular and East Malaysia
DOI:
https://doi.org/10.32890/ijbf2025.20.2.5Keywords:
Digital financial inclusion, low-income households, Peninsular Malaysia, East Malaysia, multigroup analysisAbstract
Digital financial inclusion is a fundamental component in alleviating poverty and enhancing prosperity. A comprehensive financial system lays the foundation for a basis of robust and resilient households, enhancing the welfare of low-income groups. This research examines the determinants of digital financial inclusion among low-income families in Malaysia, specifically focusing on digital literacy, financial literacy, trust, infrastructure and financial service providers. Total of one thousand one hundred seventy-one respondents with income below the national poverty line were surveyed. The Partial Least Squares-Structural Equation Modelling (PLS-SEM) and the Multigroup Analysis (MGA) techniques were employed. This study separated the total sample into two groups, Peninsular Malaysia and East Malaysia. The results demonstrate that trust, digital literacy and infrastructure are positively and significantly related to digital financial inclusion for all the groups. The role of financial service providers is only supported for the complete sample set and Peninsular Malaysia. Surprisingly, this study found no association between financial literacy and digital financial inclusion. In addition, the MGA results further evidence significant differences between Peninsular Malaysia and East Malaysia in achieving digital financial inclusion. Peninsular Malaysia shows stronger digital literacy and infrastructure, while East Malaysia demonstrates more potents effects of financial service providers and trust in boosting digital financial inclusion. These findings provide practitioners valuable insights into fostering a digitally inclusive financial society. This research includes strengthening consumer protection regulations on digital financial services to address cyber threats, implementing digital literacy campaigns to enhance awareness, and ensuring affordable and reliable internet access. These policy recommendations highlight the importance of formulating and designing tailored strategies to enhance digital financial inclusion among low-income households in Malaysia.
References
AFI. (2011). Measuring financial inclusion: Core set of financial inclusion indicators. https://www.findevgate way.org/sites/default/files/publications/files/mfg-en-paper-measuring-financial-inclusion-core-set-of-financial-inclusion-indicators-2011.pdf
AFI. (2021). Digital financial literacy. https://www.afi-global.org/wp-content/uploads/2021/05/AFI_Guideline 45_Digi_Finance_Literacy_aw5.pdf
Alnemer, H. A. (2022). Determinants of digital banking adoption in the Kingdom of Saudi Arabia: A technology acceptance model approach. Digital Business, 2(2), 100037. https://doi.org/10.1016/j.digbus.2022. 100037
Anderson, J., & Gerbing, D. (1988). Structural equation modeling in practice: A review and recommended two-step approach. Psychological Bulletin, 103, 411-423. http://dx.doi.org/10.1037/0033-2909.103.3.411
Aziz, A., & Naima, U. (2021). Rethinking digital financial inclusion: Evidence from Bangladesh. Technology in Society. 64(4-5), 101509. http://doi.org/10.1016/j.techsoc.2020.101509
Behrman, J. R., Mitchell, O. S., Soo, C. K. & Bravo, D. (2012). How financial literacy affects household wealth accumulation. American Economic Review, 102(3): 300–304. https://doi.org/0.1257/aer.102.3.300
BNM. (2023). Financial inclusion framework 2023-2026 Strategy Paper. https://www.bnm.gov.my/documents/ 20124/55792/SP-2nd-fin-incl-framework.pdf
Bongomin, G. O., Ntayi, J. M., Munene, J. C. & Nabeta, I. N. (2016). Social capital: Mediator of financial literacy and financial inclusion in rural Uganda. Review of International Business and Strategy, 26(2), 291-312. https://doi.org/10.1108/RIBS-06-2014-0072
Bongomin, G. O., & Ntayi, J. M. (2020). Trust: Mediator between mobile money adoption and usage and financial inclusion. Social Responsibility Journal, 16(8), 1216-1237. http://doi.org/10.1108/SRJ-01-2019-0011
Bucher-Koenen, T. & Lusardi, A. (2011). Financial literacy and retirement planning in Germany. NBER Working Paper No. w17110.
Cheah, J-H., Amaro, S., & Roldán, J. L. (2023). Multigroup analysis of more than two groups in PLS-SEM: A review, illustration, and recommendations. Journal of Business Research, 156, 113539. https://doi.org/10.1016/j.jbusres.2022.113539
Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). Hillsdale, NJ: Lawrence Erlbaum Associates, Publishers.
D’Silva, D., Filkova, Z., Packer, F. & Tiwari, S. (2019). The design of digital financial infrastructure: Lessons from India. Bank for International Settlement. https://www.bis.org/publ/bppdf/bispap106.pdf
Demir, A., Pesqué-Cela, V., Altunbas, Y., & Murinde, V. (2022). Fintech, financial inclusion and income inequality: A quantile regression approach, The European Journal of Finance, 28(1), 86-107. http://doi.org/10.1080/1351847X.2020.1772335
Demirgüc-Kunt, A., Klapper, L. & Singer, D. (2017). Financial inclusion and inclusive growth: A review of recent empirical evidence. Policy Research Working Paper 8040. World Bank Group; Development Research Group. https://doi.org/10.1596/1813-9450-8040
Demirgüç-Kunt, Asli, Klapper, L., Singer, D., Saniya Ansar, & Hess, J. (2018). The global findex database 2017: Measuring financial inclusion and the fintech revolution. Washington, DC: World Bank. DOSM. (August 6, 2021). The Household Income Estimate and Incidence of Poverty Report, Malaysia 2020. https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=493&bul_id=VTNHRkdiZkFze nBNd1Y1dmg2UUlrZz09&menu_id=amVoWU54UTl0a21NWmdhMjFMMWcyZz09 DOSM. (28 July 2023). Report of poverty in Malaysia 2022. https://www.dosm.gov.my/uploads/release-content/file_20230728010316.pdf
DOSM. (2023). Highlights income expenditure poverty inequality. https://www.dosm.gov.my/uploads/release-content/file_20230808213355.pdf
Gefen, D. (2000). E-commerce: The role of familiarity and trust. The International Journal of Management Science, 28, 725-737. http://dx.doi.org/10.1016/s0305-0483(00)00021-9
Geng, Z., & He, G. (2021). Digital financial inclusion and sustainable employment: Evidence from countries along the belt and road. Borsa Istanbul Review, 21, 307-316. https://doi.org/10.1016/j.bir.2021.04.004
Global Findex Questionnaire. (2017). Global findex questionnaire. https://thedocs.worldbank.org/en/doc/ f0edf7729dcef42aa9ff3d2ab000c9fe-0050062022/original/questionnaire2017.pdf
Goldsmith, R. N. (1969). Financial structure and development. Yale University Press, New Haven.
GPFI. (2012). G20 financial inclusion indicators. https://www.gpfi.org/g20-financial-inclusion-indicators
Guo, F., Wang, J., Wang, F., Kong, T., Zhang, X., & Cheng, Z. (2020). Measuring China’s digital financial inclusion: Index compilation and spatial characteristics. China Economic Quarterly, 19(4), 1401-1418.
Hair, J. & Alamer, A. (2022). Partial least squares structural equation modeling (PLS-SEM) in second language and education research: Guidelines using an applied example. Research Methods in Applied Linguistics, 1, 100027. https://doi.org/10.1016/j.rmal.2022.100027
Hair, J. F., Ringle, C. M. & Sarstedt, M. (2013). Partial least squares structural equation modeling: Rigorous applications, better results and higher acceptance. Long Range Planning, 46, 1-12. https://doi.org/10.1016/j.lrp.2013.01.001
Hair, J. F., Risher, J., Sarstedt, M. & Ringle, C. M. (2019). When to use and how to report the results of PLS-SEM. European Business Review, 31(1), 2-24. https://doi.org/10.1108/EBR-11-2018-0203
Henseler, J., Ringle, C. M. & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science, 43, 115–135. https://doi.org/10.1007/s11747-014-0403-8
Henseler, J., Ringle, C. M. & Sarstedt, M. (2016). Testing measurement invariance of composites using partial least squares. International Marketing Review, 33(3), 405-431.
Hossain, S. A., Bao, Y., Hasan, N. & Islam, M. F. (2020). Perception and prediction of intention to use online banking systems: An empirical study using extended TAM. International Journal of Research in Business and Social Science (2147-4478), 9(1), 112–126. https://doi.org/10.20525/ijrbs.v9i1.591
Jack, W. & Suri, T. (2011). Mobile money: The economics of M-PESA, NBER Working Papers 16721, National Bureau of Economic Research, Inc.
Kass-Hanna, J., Lyons, A. C. & Liu, F. (2021). Building financial resilience through financial and digital literacy in South Asia and Sub-Saharan Africa, Emerging Markets Review, 100846. https://doi.org/10.1016/j. ememar.2021.100846
Khera, P., Ng, S. Y., Ogawa, S. & Sahay, R. (2021). Is digital financial inclusion unlocking growth? IMF Working Paper 2021/167. International Monetary Fund.
Khoa, B. T. (2020). The impact of the personal data disclosure’s tradeoff on the trust and attitude loyalty in mobile banking services. Journal of Promotion Management, 27(4), 585–608. https://doi.org/10.1080/ 10496491.2020.1838028
Kim, J., Melissa Tan, C. F., Aaron Lim, J. M. & Aboucabar, M. (2022). Digital financial services for financial inclusion in Southeast Asia, Report-November 2022. Tech for Good Institute. https://techforgood institute.org/wp-content/uploads/2022/10/TFGI_DFSFIISA-Report_111122.pdf
Kling, G., Pesqué-Cela, V., Tian, L. & Luo, D. (2020). A theory of financial inclusion and income inequality. The European Journal of Finance, 28(1), 137–157. https://doi.org/10.1080/1351847X.2020.1792960
Kock, N. & Lynn, G. S. (2012). Lateral collinearity and misleading results in variance-based SEM: An illustration and recommendations. Journal of the Association for Information Systems, 13(7), 546-580.
Krejcie, R. V. & Morgan, D. W. (1970). Determining sample size for research activities. Educational and Psychological Measurement, 30(3), 607–610.
Kumar, P., Pillai, R., Kumar, N. & Tabash, M. I. (2022). The interplay of skills, digital financial literacy, capability, and autonomy in financial decision making and well-being. Borsa Istanbul Review, 23(1), 169-183. https://doi.org/10.1016/j.bir.2022.09.012
Liu, J., Chen, Y., Chen, X., & Chen, B. (2024). Digital financial inclusion and household financial vulnerability: An empirical analysis of rural and urban disparities in China. Heliyon, 10(15).
Liu, Y., Luan, L., Wu, W., Zhang, Z., & Hsu, Y. (2021). Can digital financial inclusion promote China’s economic growth. International Review of Financial Analysis, 78. https://doi.org/10.1016/j.irfa.2021. 101889
Lumsden, E. (2018). The future is mobile: Financial inclusion and technological innovation in the emerging world. Stanford Journal of Law, Business, & Finance, 23, 1.
Lyons, A. C., Grable, J. E. & Zeng, T. (2019). Impacts of financial literacy on the loan decisions of financially excluded households in the People’s Republic of China. ADBI Working Paper 923. Tokyo: Asian Development Bank Institute. https://www.adb.org/publications/impacts-financial-literacy-loan-decisions-financially-excludedhouseholds-prc
Lyons, A. C. & Kass-Hanna, J. (2021). A methodological overview to defining and measuring 'Digital' financial literacy. Financial Planning Review, 4(2), e1113. https://doi.org/10.1002/cfp2.1113
Lyons, A. C., Kass-Hana, J., & Greenlee, A. (2021). Impacts of financial and digital inclusion on poverty in South Asia and Sub-Saharan Africa. Food Sustainability and Security eJournal.
Mahdzan, N. S., Sabri, M. F., Husniyah, A. R., Magli, A. S., & Chowdhury, N. T. (2023). Digital financial services usage and subjective financial well-being: Evidence from low-income households in Malaysia. International Journal of Bank Marketing, 41(2), 395-427. https://doi.org/10.1108/IJBM-06-2022-0226
Mahendra Dev, S. (2006). Financial inclusion: Issues and challenges. Economic and Political Weekly, 41, 4310-4313.
Malady, L. (2016). Consumer protection issues for digital financial services in emerging markets. Banking and Finance Law Review, 31(2), 389-401. http://dx.doi.org/10.2139/ssrn.3028371
McKinnon, R. I. (1973). The value-added tax and the liberalization of foreign trade in developing economies: A comment. Journal of Economic Literature, 11(2), 520-524.
MCMC. (2021). Hand phone users survey 2021 (HPUS 2021). https://www.mcmc.gov.my/skmmgovmy/media/ General/pdf2/FULL-REPORT-HPUS-2021.pdf
Mehrotra, A., & Yetman, J. (2014). Financial inclusion and optimal monetary policy. BIS Working Papers 476, Bank for International Settlements. https://www.bis.org/publ/work476.pdf
Morgan, P. J., & Long, T. Q. (2020). Financial literacy, financial inclusion, and savings behavior in Laos. Journal of Asian Economics, 68. http://doi.org/10.1016/j.asieco.2020.101197
Mujeri, M. K. & Azam, S. E. (2018). Role of digital financial services in promoting inclusive growth in Bangladesh: Challenges and opportunities. Institute for Inclusive Finance and Development, Working Paper, (55).
Mubiru, J. (2012). Financial Inclusion as tool for combating poverty: Joseph Mubiru memorial lecture. Bangladesh Bank.
Nandru, P. & Rentala, S. (2019). Demand-side analysis of measuring financial inclusion: Impact on socio-economic status of primitive tribal groups (PTGs) in India. International Journal of Development Issues, 19(1), 1-24. https://doi.org/10.1108/IJDI-06-2018-0088
Nsiah, A.Y., Yusif, H., Tweneboah, G., Agyei, K., & Baidoo, S. T. (2021). The effect of financial inclusion on poverty reduction in Sub-Sahara African: Does threshold matter? Cogent Social Sciences, 7(1) http://doi.org/10.1080/23311886.2021.1903138
OECD. (2022). OECD/INFE toolkit for measuring financial literacy and financial inclusion 2022. www.oecd.org/financial/education/2022-INFE-Toolkit-Measuring-Finlit-Financial-Inclusion.pdf
OECD. (2023). Extending broadband connectivity in Southeast Asia. OECD Publishing, Paris, https://doi.org/10.1787/b8920f6d-en.
Omar, M. A., & Inaba, K. (2020). Does financial inclusion reduce poverty and income inequality in developing countries? A panel data analysis. Economic Structures, 9(37). https://doi.org/10.1186/s40008-020-00214-4
Oehler, A., & Wendt, S. (2018). Chapter 10: Trust and financial services: The impact of increasing digitalisation and the financial crisis. The Return of Trust? Institutions and the Public after the Icelandic Financial Crisis. http://doi.org/10.1108/9781787433472
Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329-340. http://doi.org/10.1016/j.bir.2017.12.003.
Ozili, P. K. (2020). Theories of financial inclusion. MPRA Paper 101810, University Library of Munich, Germany.
Rahman, M., Isa, C. R., Masud, M. M., Sarker, M., & Chowdhury, N. T. (2021). The role of financial behaviour, financial literacy, and financial stress in explaining the financial well-being of B40 group in Malaysia. Future Business Journal, 7(52), 1-18. https://doi.org/10.1186/s43093-021-00099-0
Rewilak, J. (2017). The role of financial development in poverty reduction. Review of Development Finance, 7(2), 169-176. https://doi.org/10.1016/j.rdf.2017.10.001
Rogers, E. M. (1962). Diffusion of innovations. New York: Free Press.
Park, C., & Mercado, R. (2018). Financial inclusion, poverty and income inequality. The Singapore Economic Review, 63(1), 185-206.
Sarstedt, M., Ringle, C. M. & Hair, J. F. (2017). Partial least squares structural equation modeling. In Homburg, C., Klarmann, M., Vomberg, A. (Eds.), Handbook of Market Research. Springer, Cham. https://doi.org/10.1007/978-3-319-05542-8_15-1
Setiawan, B., Phan, T. D., Medina, J., Wieriks, M., Nathan, R. J., & Fekete-Farkas, M. (2024). Quest for financial inclusion via digital financial services (Fintech) during COVID-19 pandemic: Case study of women in Indonesia. Journal of Financial Services Marketing, 29, 459–473. https://doi.org/10.1057/s41264-023-00217-9
Shaikh, A. A., Glavee-Geo, R., & Karjaluoto, H. (2018). How relevant are risk perceptions, effort, and performance expectancy in mobile banking adoption? International Journal of E-Business Research, 14(2), 39-60. https://ntnuopen.ntnu.no/ntnuxmlui/bitstream/handle/11250/2582760/PREPRINT_IJEBR. pdf?sequence=2
Schumpeter, J. (1911). The theory of economic development. Cambridge, MA: Harvard University Press.
Shaw Jr, F. D. (1973). A model on the differential effects of household capital formation on optimal economic growth. Purdue University.
Thathsarani, U., Wei, J., & Samaraweera, G. (2021). Financial inclusion’s role in economic growth and human capital in South Asia: An econometric approach. Sustainability, 13(4303). https://doi.org/10.3390/ su13084303
The CGAP. (2015). What is digital financial inclusion and why does it matters? https://www.cgap.org/blog/what-digital-financial-inclusion-and-why-does-it-matter
The World Bank. (2020). How countries can expand access to digital financial services. https://www.worldbank. org/en/topic/financialsector/publication/digital-financial-services
The World Bank. (2024). Poverty and equity brief. https://app.powerbi.com/view?r=eyJrIjoiYjNkNWQzMWQ tODkwYy00NGRjLWI4NzQtYmU5ODM5NGYyMjVkIiwidCI6IjMxYTJmZWMwLTI2NmItNGM2 Ny1iNTZlLTI3OTZkOGY1OWMzNiIsImMiOjF9
Toronto Centre. (2022). Financial literacy and digital financial inclusion: Supervisory policy and practice. https://www.torontocentre.org//videos/TCN_Financial_Literacy_And_Digital_Financial_Inclusion_Sup ervisory_Policy_And_Practice.pdf
United Nations. (2016). The sustainable development goals report 2016. https://unstats.un.org/sdgs/report/2016/ the%20sustainable%20development%20goals%20report%202016.pdf
Vaid, K. Y., Singh, V. & Sethi, M. (2020). Determinants of successful financial inclusion in low-income rural population. The Indian Economic Journal, 68, 82-100. http://doi.org/10.1177/0019466220962057
Verma, A., & Giri, A. K. (2024). Does financial inclusion reduce income inequality? Empirical evidence from Asian economies. International Journal of Emerging Markets, 19(9), 2428-2445. https://doi.org/10. 1108/IJOEM-02-2022-0271
Wan Usamah, W. A. (2024). Deepening Malaysia’s understanding of poverty. Kuala Lumpur: Khazanah Research Institute. https://www.krinstitute.org/assets/contentMS/img/template/editor/20241017_ Deepening%20Malaysia%20Understanding%20of%20Poverty_WAWU.pdf
Yan, C., Siddik, A. B., Akter, N. & Dong, Q. (2021). Factors influencing the adoption intention of using mobile financial service during the COVID-19 pandemic: The role of FinTech. Environmental Science and Pollution Research. https://doi.org/10.1007/s11356-021-17437-y
Yu, N., & Wang, Y. (2021). Can digital inclusive finance narrow the Chinese urban–rural income gap? The perspective of the regional urban–rural income structure. Sustainability, 13(11), 6427. https://doi.org/10.3390/su13116427
Zhou, L. & Wang, H. (2021). An approach to study the poverty reduction effect of digital inclusive finance from a multidimensional perspective based on clustering algorithms. Scientific Programming, 3, 1-11. http://doi.org/10.1155/2021/4645596
Published
Issue
Section
How to Cite
Research impact
Harvested 2026-09-07Counts differ between services because each indexes a different body of literature. None of them is the whole picture.
