Digital Financial Inclusion and Formal Entrepreneurship: The Roles of Business Entry Institutions and Regulatory Quality
DOI:
https://doi.org/10.54938/ijemdss.2026.05.1.774Abstract
Digital financial inclusion has emerged as a key policy instrument for promoting entrepreneurship and inclusive economic development. However, existing research provides limited insight into the institutional mechanisms through which financial inclusion translates into formal business creation. Drawing on Institutional Theory, this study examines the relationships among digital financial inclusion, domestic private-sector bank credit, the business-entry environment, regulatory quality, and formal entrepreneurship. Specifically, the study investigates the mediating role of the business-entry environment and the moderating effect of regulatory quality. Using cross-country secondary data obtained from the World Bank's Global Findex Database, Business Ready (B-READY), Enterprise Surveys, World Development Indicators, Entrepreneurship Database, and Worldwide Governance Indicators, the proposed framework is estimated using regression-based mediation and moderation analyses.
The findings indicate that digital financial inclusion and domestic private-sector bank credit positively influence the business-entry environment, which, in turn, significantly promotes formal new-business creation. The business-entry environment also mediates the relationship between domestic private-sector bank credit and new business density, while regulatory quality strengthens the positive association between the business-entry environment and formal entrepreneurship. However, female participation in firm ownership does not exhibit a statistically significant independent effect on the business-entry environment.
This study contributes to Institutional Theory by demonstrating that financial resources promote entrepreneurship not only through greater financial access but also through institutional mechanisms that facilitate business entry. The findings further suggest that governments should complement financial inclusion initiatives with reforms aimed at improving business-entry procedures and strengthening regulatory quality to achieve sustainable entrepreneurial development.
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Copyright (c) 2025 Muhammad Aizaz Khan, Abdul Razzaq, Kiran Afzal
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