ISLAMIC FINTECH AND FINANCIAL INCLUSION: ASSESSING THE ROLE OF DIGITAL BANKING IN REDUCING ECONOMIC INEQUALITY IN PAKISTAN

Abstract

This study examines the role of Islamic FinTech and digital banking in enhancing financial inclusion and reducing economic inequality in Pakistan. Despite rapid growth in digital financial services, a large segment of the population remains financially excluded, particularly in rural and low-income communities. The study develops an integrated framework based on the Technology Acceptance Model (TAM) to analyze how Islamic FinTech and digital banking influence financial inclusion and how financial inclusion, in turn, affects economic inequality. A quantitative, cross-sectional research design was employed, and data were analyzed using Structural Equation Modeling (SEM). The findings reveal that both Islamic FinTech and digital banking have a significant positive impact on financial inclusion, while financial inclusion has a significant negative effect on economic inequality. Furthermore, financial inclusion significantly mediates the relationship between digital financial innovations and economic inequality. The results highlight that financial inclusion serves as a key transmission mechanism through which digital financial systems contribute to more equitable income distribution. The study contributes to the literature by integrating Islamic financial principles with digital banking adoption in explaining inequality reduction in a developing economy context. Policy implications emphasize strengthening digital infrastructure, expanding Islamic FinTech services, and promoting financial literacy to achieve inclusive economic growth in Pakistan.