Bridging Digital Financial Inclusion and Financial Stability: A Bayesian Exploration Across Global Regions

This study investigates how digital financial inclusion (DFI) shapes financial stability (FS) across 52 countries from 2004 to 2021 using a Bayesian regression framework. The evidence reveals a central insight: at the global level, DFI is associated with weaker financial stability, suggesting that expanding financial access too fast can amplify systemic vulnerabilities. Yet the regional patterns offer a more layered understanding. In Africa, Latin America, and Asia, DFI strengthens financial stability by lowering the probability of banking distress, indicating its potential to act as a stabilizing force within credit and payment systems. In contrast, the results for Europe show that DFI weakens financial stability, implying that rapid or weakly regulated digitalisation may intensify financial fragility rather than reduce it.These findings carry important policy relevance. For Africa, Latin America, and Asia, policymakers should continue to support the expansion of DFI while providing targeted financial and technological assistance to safeguard system wide resilience. For Europe, however, the priority is to strengthen regulatory oversight to ensure that digital finance develops on a sustainable foundation and does not become a channel through which new financial risks emerge.