The Impact of Digital Financial Services on Banking Stability Under the Moderating role of Financial Inclusion: Evidence from Egypt

Document Type : Original Article

Authors

1 Faculty of Management, Economics and Business Technology, Egyptian Russian University, Egypt

2 Thebes Higher Institute of Management and Information Technology, Egypt.

Abstract

This study investigates Egypt’s banking sector, focusing on the impact of digital financial services (DFS) on banking stability under the moderating role of financial inclusion amid the debate between "innovation-growth" and "innovation-fragility," perspectives. Using balanced panel data from 30 Egyptian banks spanning 2011–2022 and employing hierarchical regression analysis and cross-sectional analysis, the study finds that DFSs play a crucial role in promoting financial inclusion. Moreover, financial inclusion significantly moderates banking stability, as evidenced by using non-performing loans or capital adequacy proxies. Therefore, the Egyptian context supports "innovation-growth" by demonstrating that DFSs directly support financial inclusion and indirectly contribute to banking stability. Further research can solidify our understanding of these relationships and guide policymakers in crafting effective strategies for a more inclusive and stable financial system.

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