Financial Technologies for All MENA citizens: Tackling barriers and promoting inclusion

Abstract

The digital divide within the financial sector, closely intertwined with the rapid evolution of financial technologies, commonly known as "FinTech," has fundamentally reshaped the landscape of financial services. These innovations have ushered in novel avenues for accessibility, enhancing the security of financial transactions and transcending traditional spatiotemporal constraints. This paper embarks on a journey to address key inquiries within the MENA region. It explores digital financial inclusion levels across MENA countries, identifies segments facing digital financial exclusion, scrutinizes the role of the digital divide, often compounded by a lack of financial literacy, as a barrier to financial inclusion, and investigates how FinTech can serve as a catalyst for inclusive development, with a specific focus on marginalized groups like women and the elderly. Our research employs a comprehensive mixed-methodological approach. We draw from micro-level data sourced from 9053 individuals, extracted from the World Bank's latest Global Findex 2021 database. Our comparative analysis, rooted in a two-step principal component analysis method to create the MENA Digital Financial Inclusion Index (DFII), shedding light on the current state of digital financial inclusion in the MENA region. Despite recent initiatives, our findings underscore that digital financial inclusion in the region remains relatively low. Furthermore, our estimations, based on the Heckman selection methodology, emphasize the pivotal role played by factors such as educational attainment, labor force participation, information and communication technologies, and internet access as primary drivers of digital financial inclusion in the MENA region. Our research contributes a substantial body of empirical evidence regarding digital financial inclusion levels across MENA countries, charting a path toward bridging the digital divide within the financial sector. These strategies encompass enhancing digital financial literacy, catalyzing broader participation in the labor market, and facilitating expanded access to mobile phones and the Internet. In light of our comprehensive dataset, the policy implications drawn from our study are of paramount interest to financial sector regulators in the MENA region, grounded in the real-life experiences of the individuals constituting our database, with the overarching goal of elevating digital financial inclusion in the region to new heights.