Article
Digital Technology Adoption, Business Formalization, and the Uptake of Digital Financial Services Among India's Informal Enterprises
India's informal enterprises appear to employ the overwhelming majority of the country's non-agricultural workforce, yet remain persistently excluded from the formal financial system. This paper examines whether the adoption of basic digital technologies by informal firms translates into greater uptake of digital financial services (DFS), and the mechanisms through which this relationship may operate. Using a nationally representative firm-level dataset of 10,672 informal enterprises across nine Indian cities, this paper constructs a novel Digital Technology Adoption Index, a Business Formalization Index, and a Digital Financial Services Index, and estimates record-keeping and budgeting practices mediate the technology and finance relationship, while owner gender and educational attainment moderate its strength. The analysis suggests that digital technology adoption may be strongly associated with DFS uptake, that roughly 9% of this effect is transmitted through improved business formalization practices, and that the relationship appears to be significantly stronger for women-owned enterprises and for owners with less formal education. Digital and financial engagement appear to be further associated with substantially higher odds of access to formal credit. The findings suggest that India's distinctive digital public infrastructure may foster the business formalization of informal enterprises and potentially extend these benefits to roughly 65 million informal enterprises.