Is Going Cashless Green? The impact of Digital Financial Inclusion on Environmental Quality in South Asia

Abstract

Digitalization of finance as measured by the adoption of cashless transactions, presents key novelties for both financial inclusiveness and environmental sustainability. This study investigates the effect of Digital Financial Inclusion (DFI) and Traditional Financial Inclusion (TFI) on environmental quality amid South Asian countries. Principal Component Analysis technique is employed for the construction of DFI and TFI indices while the long-run relation was calculated using the Pooled Mean Group (PMG) estimator. The findings suggest that the environmental impact of financial inclusion vary depending on how it is implemented. TFI significantly influence environmental degradation, probably by the extension in the physical infrastructure of banks and their financing in carbon-intensive projects. On the other hand, the study affirms the impact of DFI in enhancing green alternatives and lessened environmental burdens via reduced carbon emissions in the long run. This study suggests that promoting digital finance should be accompanied by investments in green technologies and access to technology, to strengthen the environmental sustainability. The study provides empirical evidence in explaining the environmental quality in South Asia by distinguishing between DFI and TFI., where TFI aggravate environmental degradation, while DFI improves environmental quality by lowering carbon emissions and fostering cleaner alternatives.