The Influence of Digital and Financial Literacy on Interest-Free Banking Financial Inclusions: Insight from Ethiopia's Country-Specific Socioeconomic Survey 2018–19

Abstract

This study aimed to investigate the influence of financial and digital literacy on the use of interest-free banking services as a policy tool for financial inclusion in Ethiopia. The study used Ethiopia's country-specific Socioeconomic Survey (ESS) 2018–19 data, which included clustered dataset structures such as regional, place, household, and individual differences. Descriptive statistics were used to demonstrate variation in digital financial literacy, financial literacy, and Interest Fee Banking (IFB) service use among adults in the country. Mixed-effects Econometric modeling was estimated by applying within-household random variance-controlled maximum likelihood techniques in STATA algorithms. These methods aim to estimate the fixed effects and random variations in IFB use among adults efficiently while capturing cluster-specific deviations. These modeling and estimation techniques provide a powerful and flexible approach to ensuring robustness and trustworthy findings in survey data contexts. The findings show that adults' digital financial literacy, financial literacy, IFB service use, and other characteristics of the financial literacy mean score are distributed asymmetrically among geographical places, genders, incomes, and religious affiliations. Additionally, these data insight results demonstrate that digital and financial literacy-restricted random effects predictor parameters have a positive and significant influence on IFB usage. This implies that enhancing adults' digital and financial knowledge, attitudes, and behaviors results in a significant increase in financial inclusion in Ethiopia at Citrus Paribus. Lastly, the researchers recommend. Robust policy intervention goals should be tailored to the values and principles of the IFB model rather than implementing a uniform traditional approach to financial inclusion. The holistic strategic solution for efficient digital-financial literacy and innovative financial products and services development required to be prioritized focuses on underserved communities such as gender, unemployment, rural, geographical, religious, and other persistent barriers that have contributed to Ethiopia's involuntary financial exclusion.