Mitigating systemic financial risk: Does digital financial inclusion matter?

Purpose This paper aims to investigate how digital inclusive finance affects systemic financial risk through spatial modeling. We analyze regional variations and mechanism pathways to understand their risk governance implications in the digital era. Design/methodology/approach We develop a spatial game model for theoretical analysis of digital inclusive finance’s risk mitigation mechanisms. Empirically, we construct a city-level panel data model using China’s digital inclusive finance index and systemic financial risk index to test these relationships quantitatively. Findings Digital inclusive finance fundamentally mitigates systemic risk by enhancing resource allocation efficiency – a mechanism particularly potent under strong financial regulation. Empirically, China’s city-level data confirm a significant risk mitigation effect, with central/western regions showing greater effects than eastern areas. Coverage breadth delivers stronger mitigation than usage depth, demonstrating how implementation dimensions shape real-world outcomes. Practical implications Policymakers should develop tailored regional strategies: prioritize digital inclusive finance’s coverage expansion in underdeveloped regions to bridge financial service gaps while focusing on its usage deepening in mature markets. Crucially, all regions require strengthened prudential regulation to maximize stability benefits through digital-regulatory synergy. Originality/value This study offers implementable frameworks for digital-era financial governance in emerging economies. Using spatial game modeling, it validates digital inclusive finance’s systemic risk mitigation and quantifies coverage breadth’s superiority over usage depth, revealing regional disparities. The work uncovers the regulatory intensity’s threshold effect, exploring digital-regulatory synergy dynamics.