A study of the relationship between digital finance and financial sector growth in Zambia: A case study of Lusaka district, Zambia

Abstract

Digital finance has emerged as a significant force in the development of financial sectors and economic progress globally. Despite the growing adoption of fintech innovations, mobile money, and online banking services in Zambia, the extent to which digital finance contributes to the efficiency and overall growth of the financial sector remains insufficiently examined. This study investigated the relationship between digital finance and financial sector growth in Lusaka District, with specific focus on mobile money services, digital payment systems, and fintech innovations as they relate to service coverage, economic sustainability, and financial inclusion. The study was guided by the financial intermediation theory, the technology acceptance model, the diffusion of innovation theory, the endogenous growth theory, and the financial inclusion theory, which collectively provided a framework for understanding how technological innovations are adopted and how they influence financial sector development. A mixed-methods cross-sectional research design was employed, combining quantitative and qualitative approaches within a positivist research philosophy. The target population comprised individuals aged 18 years and above residing in Lusaka District who had experience using digital financial services. A sample of 150 respondents was selected using simple random sampling combined with purposive sampling to ensure the inclusion of participants with relevant digital finance experience, with the sample size determined using the Raosoft sample size formula. Primary data were collected through structured questionnaires administered face-to-face by trained enumerators. Quantitative data were analysed using descriptive statistics and Spearman rank correlation analysis with the aid of Stata and Microsoft Excel, while qualitative responses were examined through thematic analysis. The findings revealed statistically significant positive associations between mobile money services and financial sector growth, digital payment systems and financial sector growth, and fintech innovations, with digital payment systems recording the strongest association. Descriptive findings further indicated that the majority of respondents perceived digital finance as making a substantial contribution to financial sector development, improving access to financial services, and supporting personal and business financial growth. However, the study also identified key barriers limiting the full potential of digital finance, including poor internet connectivity, cybersecurity threats, high transaction fees, low financial and digital literacy and limited interoperability between digital financial platforms. The study recommends expanding digital infrastructure, strengthening regulatory and cybersecurity frameworks, reducing transaction costs, enhancing financial and digital literacy through awareness campaigns, improving the usability of digital financial applications, and fostering fintech innovation. These recommendations are directed at policymakers, financial institutions, and fintech firms seeking to leverage digital finance for inclusive and sustainable financial sector development in Zambia.