The illusion of inclusion: institutional quality and the shift from symbolic to substantive digital finance

Purpose This study challenges the endemic techno-optimism of digital financial inclusion (DFI) discourse. Beyond technology adoption, institutional quality theory is postulated as the critical determinant of the efficacy and sustainability of DFI outcomes. The study further presents a conceptual distinction between symbolic and substantive inclusion. Design/methodology/approach A theory-building approach is adopted through a systematic synthesis of multidisciplinary literature spanning financial inclusion, digitalization, governance and institutional economics. An integrative framework is proposed, with institutional quality as the mediating construct and leadership support and regulatory capacity as institutional enablers that strengthen the effectiveness of institutional mediation. Findings In the absence of strong governance in the form of regulatory coherence, administrative capacity and enforcement, symbolic inclusion predominates, providing nominal market access that often increases user risk without delivering financial security or agency. Substantive inclusion occurs when robust institutions bridge the digital interface, transforming technological potential into developmental impact. Weak digital governance is a major source of variability and systemic vulnerability in DFI initiatives. Practical implications Policy should prioritize the quality of institutional infrastructure (e.g. consumer protection and reducing regulatory arbitrage) over the speed of digitalization. Sustainable financial inclusion requires active governance alongside market innovation. Originality/value The research centers governance in the DFI debate and provides an institutional critique of existing metrics. Its framework offers scholars and practitioners a socio-technical tool to evaluate the actual quality and developmental implications of digital finance in developing markets.