Abstract
This study aims to analyze the role of banking digitalization in enhancing financial inclusion in Iraq by assessing the impact of digital banking services on empowering groups excluded from the formal financial system.
The study adopts a quantitative analytical approach based on panel data from a sample of Iraqi commercial banks over the period 2015–2024. It examines financial inclusion indicators, including the number of newly opened bank accounts, the volume of electronic transactions, and the proportion of loans directed toward individuals and small businesses. These indicators are analyzed against banking digitalization measures, represented by the adoption of mobile and internet banking services and the volume of investments in technological infrastructure.
Panel data regression models, namely Fixed Effects and Random Effects, are employed, in addition to the Hausman test to determine the most appropriate model. Instrumental Variables (IV) models are also used to address the potential issue of reverse causality between banking digitalization and the increasing demand for banking services.
The results reveal a positive and statistically significant effect of banking digitalization on enhancing financial inclusion, particularly through increasing the use of electronic transactions and facilitating remote account opening. The findings also indicate variations in the magnitude of this effect between state-owned and private banks, with a greater impact observed among private banks, which demonstrate greater flexibility in adopting modern technologies.
The study concludes that banking digitalization represents an effective pathway toward expanding financial inclusion in Iraq, provided that digital infrastructure is strengthened and public trust in electronic services is enhanced. The study offers several recommendations for policymakers and banks to improve access to financial services and empower financially underserved and unbanked populations.