Fintech-based financial inclusion and banks' risk-taking: the role of regulation in Sub-Saharan Africa

Abstract

Purpose The study examines the role of regulation in the fintech-based financial inclusion (FBFI)–risk-taking nexus in the Sub-Saharan African (SSA) region. Design/methodology/approach Using a sample of 10 countries in SSA over the period 2014 to 2021, the study employed the fixed-effect regression model and the two-step generalized method of moments (GMM) estimator. Findings The results show that FBFI mitigates commercial banks risk-taking in SSA. But as FBFI progresses, the association takes the shape of an inverted U, increasing risks initially and decreasing them later on. Effective supervision and regulatory quality, in particular, are essential in moderating this relationship by offsetting the adverse consequences of FBFI in its early stages. Research limitations/implications First, while our sample is limited to banks in ten SSA countries, future studies could extend the sample size, enabling more explicit generalization of the results. Second, the FBFI–bank risk nexus can be explored further by comparing diverse forms of fintech participation, such as fintech company investment, fintech technology investment, cooperation with specific fintech service providers and cooperation with Internet giants. Practical implications Policymakers, banks and fintech companies should collaborate to certify the sustainable utilization of fintech tools to ensure financial inclusion. Policymakers should craft policies that encourage effective supervision and regulatory quality of fintechs since they reduce banks' risk-taking practices, which usually have positive effect on the economy. Originality/value The study adds value to the debate on the role of regulation on the FBFI–risk-taking nexus, taking into account countries that are at different levels of development.