DIGITAL FINANCIAL INCLUSION AND HOUSEHOLD WELFARE: EVIDENCE FROM RURAL INDONESIA

The development of digital financial services (DFS) is increasingly playing an important role in enhancing financial inclusion, especially in rural areas of developing countries.In Indonesia, the implementation of digital financial services such as mobile banking, ewallets, and fintech platforms is expected to expand public access to formal financial services and improve household welfare.This research aims to analyze the influence of digital financial inclusion on household welfare in rural areas of Indonesia.Using national household survey data (Susenas and Fintech Adoption Survey) for the period 2019-2024, this study applies Propensity Score Matching (PSM) and instrumental variable regression methods to address selection bias in the use of digital financial services.Research results show that households adopting digital financial services have higher consumption levels, increased productive investment, and better access to health and education services compared to non-adopter households.These positive effects are more significant among low-income households and female-headed households, confirming the inclusive nature of digital finance.Theoretically, this study advances the application of Sen's Capability Approach by demonstrating how digital financial access functions as a capabilityenhancing mechanism in developing contexts.Practically, these findings inform evidence-based policy interventions for promoting inclusive rural development through digital finance expansion.The main contribution of this study is to provide the latest empirical evidence about the role of digital financial inclusion on household welfare in rural areas, as well as strengthen the theoretical foundations of Sen's Capability Approach in the context of digital finance, and confirm the urgency of government policies in expanding digital infrastructure, improving financial literacy, and strengthening fintech regulations in Indonesia.