Reducing vulnerability to poverty (VtP) is essential for achieving Sustainable Development Goal-1, as many households, though currently above the poverty line, remain at risk of falling into poverty due to shocks and limited coping mechanisms. This study examines whether digital financial inclusion (DFI) can reduce household VtP in rural Odisha, India, a region frequently exposed to climatic and economic shocks. Using primary data from 457 rural households, DFI was measured through a principal component analysis (PCA) index, while VtP was estimated using the Vulnerability as Expected Poverty (VEP) approach. To address endogeneity concerns, instrumental variable (IV) and propensity score matching (PSM) techniques were applied. Results show that 42.6% of households are VtP, highlighting the importance of forward-looking measures. IV regression confirms that higher DFI significantly reduces household VtP, with the coefficient of DFI estimated at − 0.419 (p < 0.01). Robustness checks using PSM indicate that households with digital financial access experience a 16-percentage point lower probability of vulnerability. Decomposition analysis further shows that DFI households have 10% higher education attainment, 2.96 average bank accounts compared to 2.70, and a multidimensional poverty score of 0.279 versus 0.362 for excluded households. These findings underscore that expanding DFI enhances resilience and reduces future poverty risks, making it a critical pathway to sustainable poverty reduction. Policies focusing on digital infrastructure, financial literacy, and equitable access can accelerate progress toward the Sustainable Development Goals (SDGs) in disaster-prone rural regions.
Patra et al. (Sun,) studied this question.