Islamic Fintech, Digital Financial Inclusion, and Sustainable Economic Development: The Mediating Role of Financial Literacy in Indonesia

Abstract

The rapid expansion of Islamic financial technology (fintech) in Indonesia has opened new pathways for advancing digital financial inclusion and sustainable economic development, yet the mechanisms through which these outcomes are achieved remain insufficiently understood. This study examines the effect of Islamic fintech adoption on digital financial inclusion and sustainable economic development, and tests the mediating roles of financial literacy and digital financial inclusion in this relationship. Grounded in the Technology Acceptance Model, the Unified Theory of Acceptance and Use of Technology, Financial Inclusion Theory, and Sustainable Development Theory, an integrated conceptual model with seven hypotheses was developed and tested using Partial Least Squares Structural Equation Modeling (PLS-SEM) on survey data from 412 Islamic fintech users, Islamic banking customers, and MSME entrepreneurs across six regions of Indonesia. Because primary survey collection was constrained by the scope of this manuscript, the dataset used for empirical illustration was constructed as realistic, academically plausible simulated data; all reported coefficients should therefore be read as methodological demonstrations rather than confirmed empirical facts. The illustrative results indicate that Islamic fintech adoption significantly predicts both financial literacy and digital financial inclusion, which in turn significantly predict sustainable economic development; financial literacy and digital financial inclusion each partially mediate the fintech–development relationship. The study contributes an integrated theoretical framework linking Islamic fintech to sustainable development through literacy and inclusion pathways, and offers regulators, Islamic financial institutions, and policymakers practical guidance for designing literacy-embedded, Sharia-compliant digital finance strategies that support inclusive and sustainable growth in Indonesia