DIGITAL RECORDKEEPING AND THE INSTITUTIONALIZATION OF RURAL FINANCE: MECHANISMS FOR ECONOMIC FORMALIZATION

Abstract

Rural populations across developing economies face persistent challenges accessing formal financial services, primarily due to inadequate documentation and credit histories. This research explores how digital recordkeeping systems facilitate the institutionalization of rural finance and enable economic formalization. Using mixed-methods research involving 450 rural households and 35 microfinance institutions across three regions, we examine the mechanisms through which digital records transform informal financial relationships into formal institutional arrangements. Our findings demonstrate that digital recordkeeping increases formal credit access by 34%, reduces transaction costs by 48%, and improves repayment rates by 26%. Beyond mere technological adoption, digital records create verifiable financial identities, reduce information asymmetries, and build institutional trust. The study reveals that successful formalization requires not just technology deployment but complementary institutional frameworks, financial literacy programs, and community engagement. These insights inform policy design for financial inclusion initiatives and offer practical guidance for development practitioners working to integrate rural populations into formal economic systems.