Digital Skills and Distance Shape Financial Inclusion in Rural Punjab, Survey Finds

A survey of 300 adults in Punjab, Pakistan, has found that digital capability is strongly associated with the intensity of formal financial participation, while the relationship between physical distance to a bank branch or agent and banking-app use is far stranger than a simple substitution story would predict. The study, published in the journal Digital Economy and Sustainable Development, reports that people living farthest from financial access points were not the least likely to use banking apps but, among rural respondents, among the most likely, a pattern the authors interpret as compatible with digital substitution for routine transactions once users are already connected.

The research team, led by Muhammad Zain-Ul-Abidin, collected cross-sectional data through face-to-face administration of a structured questionnaire in Lahore, Daska, and Sheikhupura. Participants were recruited through non-probability convenience sampling, with enumerators approaching accessible eligible adults aged at least 18 years. The final analytical sample comprised 300 completed questionnaires, of which 143 respondents classified their area as rural and 157 as urban. Because no sampling frame was used, the authors are explicit that the results describe the observed respondents and cannot be generalized to all residents of the study locations, Punjab, or Pakistan.

The study was designed to disentangle three things that research on digital finance often conflates: a person’s capability with information and communication technology, their intensity of participation in the formal financial system, and one specific digital behaviour, namely the frequency of internet banking through banking apps. The primary outcome was a Financial Inclusion Intensity Index, a formative composite ranging from 0 to 1 built from five observed aspects of formal participation: the number of bank accounts, ownership of an ATM or debit card, transaction frequency, duration of financial-service use, and the amount normally transferred or received. ICT capability was measured separately as an equal-weight combination of digital access, recent usage, and self-reported skills, each standardized before analysis.

The headline quantitative result concerns capability. In a fractional-logit model adjusted for area, age group, education, employment status, income group, gender, and marital status, a one-standard-deviation increase in standardized ICT capability was associated with a 0.0819-point increase in the inclusion index, with a standard error of 0.0151 and a p-value below 0.001. In practical terms, a one-standard-deviation difference in digital capability corresponded to an expected difference of roughly 8.2 percentage points on the 0-to-1 index. An ordinary least squares comparison produced a nearly identical coefficient of 0.0788, and a principal-component-weighted version of the index yielded an estimate of 0.0847, suggesting the finding was not an artefact of the chosen model or weighting scheme.

Just as notable is what the data did not show. The rural and urban marginal effects were 0.0826 and 0.0817 respectively, a numerical difference of less than one tenth of a percentage point, and the formal interaction test found no statistically significant rural-urban difference in the conditional ICT-inclusion association (p = 0.876). Rural respondents did, however, start from a much lower baseline. Mean financial inclusion intensity was 0.372 among rural respondents against 0.510 among urban respondents, a difference of 0.138 points that was statistically significant, and overall ICT capability averaged 3.490 in rural areas versus 4.105 in urban ones, with every ICT dimension differing by area at p < 0.001. The rural disadvantage, the authors conclude, appears mainly as a gap in average capability and inclusion rather than a different return to digital capability.

When the three ICT dimensions were entered jointly, the picture became more nuanced. ICT skills carried the largest adjusted association, an average marginal effect of 0.0437 (p = 0.003), digital access followed at 0.0313 (p = 0.025), and ICT usage was not statistically significant at 0.0246 (p = 0.160). The authors caution that these weaker results for individual dimensions argue against relying on any single intervention, such as connectivity alone, to close the inclusion gap.

The physical-access analysis produced the study’s most counterintuitive finding. Using ordered-probit models with self-reported distance to the nearest bank branch or financial agent, recorded in categories from 0-1 km to more than 10 km, the four distance indicators were jointly significant (p = 0.0047). Relative to the 0-1 km reference, the latent-index coefficients were 0.6025 for 4-5 km and 0.8770 for more than 10 km, while the 2-3 km and 6-9 km categories were not statistically significant. The relationship is therefore nonlinear and cannot be described as a steady increase in app use with every additional kilometre. Predicted probabilities made the pattern concrete: the pooled probability of always using banking apps rose from 0.199 at 0-1 km to 0.453 at more than 10 km, and the probability of often or always using them rose from 0.362 to 0.648, with a dip at 6-9 km confirming the non-monotonic shape.

The distance profile also differed sharply between areas. The distance-by-area interaction was jointly significant (p = 0.0002). Among rural respondents, the predicted probability of often or always using banking apps was 0.238 at 0-1 km but 0.603 at more than 10 km, a pattern consistent with apps substituting for travel once users are connected. Urban probabilities peaked at 0.858 in the 4-5 km category and fell to 0.272 in the farthest category, but the authors urge restraint here: the farthest urban cell contained only five respondents and the 4-5 km urban cell contained eleven, so individual estimates from those cells are imprecise, and the joint interaction test carries more evidential weight than any single sparse-cell figure. Sensitivity analyses assigning 11, 12, 15, or 20 km to the open-ended top category left the continuous-distance coefficient positive and significant, with p-values between 0.0013 and 0.0017.

The raw access gaps in the sample were stark. More than half of urban respondents lived within 0-1 km of a branch or agent, compared with 13.3 percent of rural respondents, while 23.8 percent of rural respondents and 3.2 percent of urban respondents reported a distance greater than 10 km. Always using banking apps was reported by 35.0 percent of urban respondents and 15.4 percent of rural respondents, whereas 31.5 percent of rural respondents and 19.7 percent of urban respondents reported never using them. The study situates these figures against national context: digital channels processed 92 percent of retail payments through the formal banking system in January to March 2026, and Pakistan’s financial-inclusion level rose from 64 percent in 2023 to 69 percent in 2025, with the gender gap narrowing from 34 to 29 percent, according to State Bank of Pakistan figures cited in the paper. Aggregate gains, the authors argue, do not establish equal participation.

The interpretation carries heavy caveats. The convenience sample was heavily skewed toward the young and educated, with 88.0 percent of respondents aged 20 to 30, 54.0 percent students, and 81.7 percent holding graduate or postgraduate education, none of which are population estimates. The cross-sectional design cannot establish temporal ordering, self-reported measures of capability, distance, and app use may contain recall or response error, and adjustment for covariates cannot remove selection bias or unmeasured confounding. The authors frame all estimates as conditional associations, not causal effects, and note that a positive far-distance association does not establish that distance itself increases adoption. Their policy conclusion is deliberately modest: digital capability and physical access remain complementary components of inclusion policy, and coordinated investment in digital skills alongside accessible service points, rather than a uniform digital-only or branch-expansion response, is what the evidence supports. Future work, they suggest, should use probability samples across more districts, geocoded measures of travel time and service quality, administrative transaction records, and longitudinal or quasi-experimental designs to separate digital substitution from selection and residential sorting.

Subject of Research: How digital capability and physical distance relate to financial inclusion and banking-app use among rural and urban adults in Punjab, Pakistan

Article Title: Digital capability, physical access, and financial inclusion among rural and urban respondents in Punjab, Pakistan

Article References: Zain-Ul-Abidin, M. (2026). Digital capability, physical access, and financial inclusion among rural and urban respondents in Punjab, Pakistan. Digital Economy and Sustainable Development, 4(1), Article 16. https://doi.org/10.1007/s44265-026-00094-9

Image Credits: AI Generated

DOI: 10.1007/s44265-026-00094-9

Keywords: financial inclusion, digital finance, ICT capability, banking apps, rural-urban gap, Pakistan, Punjab, physical access, cross-sectional survey, fractional logit, ordered probit, digital skills