Examining the Mediating Role of Digital Finance in the Relationship Between Financial Inclusion and Poverty Alleviation

This study explores the mediating role of digital finance in enhancing financial inclusion and alleviating poverty across nine East Africa countries from 2008 to 2022 and considering country-specific effects, the study fills a gap in the literature by empirically examining how digital finance mediates the relationship between financial inclusion and poverty reduction. The research, based on secondary data from the IMF, UNDP, and World Bank, Using a quantitative approach with Feasible Generalized Least Squares (FGLS) regression model, the study investigates the impact of independent variables on poverty alleviation. Additionally, bootstrap fixed-effects and Sobel Z-value tests are employed to assess the significance of the mediation approach, followed by robustness checks using Generalized Method of Moments (GMM) and Quantile regression. The findings reveal that digital finance and financial inclusion have a positive impact on poverty alleviation. The study highpoints that digital finance significantly mediates the effect of financial inclusion on poverty alleviation, accounting for about 38.3% of the total impact. Urban areas benefit substantially from digital finance, while rural areas face barriers like poor infrastructure and low digital literacy, which limit the effectiveness of these interventions. The research emphasizes the need for governments to focus on strengthening digital infrastructure, fostering public-private partnerships, improving digital literacy, and developing targeted policies for rural areas to bridge the urban-rural divide. These measures will maximize the impact of digital finance, foster inclusive growth, and reduce poverty across East Africa.