Fintech-Based Financial Inclusion and Risk-Taking Behaviour of Financial Institutions: Evidence from South Asia

Abstract

Fintech innovations enhance the financial system's stability and mitigate key stakeholders' risk propensity. However,
a requirement persists for additional empirical evidence to validate the significant impact of fintech-based financial
inclusion (FinFI) on the risk-taking tendencies of financial institutions (FIs) active in South Asian nations and the
considerable differences in the relationship between fintech-based financial inclusion and the risk-taking behavior
of financial institutions among the different countries in South Asia. While extensive research regarding fintech,
financial inclusion, and financial institutions exists in various regions worldwide, there is a notable scarcity of studies
focusing on South Asian countries such as Pakistan, India, Bangladesh, Nepal, and Sri Lanka. This study aims to
bridge this gap by investigating fintech-based financial inclusion and the risk-taking behavior of financial institutions
in South Asian countries over twelve years spanning from 2011 to 2022. The data collection process employed the
convenience sampling method. However, other countries like Bhutan, Afghanistan, and Maldives are not included in
the study population due to a lack of data. Additionally, we have utilized datasets from reputable sources, including
the World Development Indicators, Global Financial Development, and Global Financial Inclusion databases for
quantitative data collection. Panel data analysis is a statistical methodology used to examine and analyze the dataset
of multiple entities observed over several periods. We evaluated the FinFI and analyzed its impact on mitigating risk
taking behavior among financial institutions. The reliability of our results has been confirmed through a
comprehensive series of rigorous tests for robustness. The results of the analysis have proved that Fintech-based
financial inclusion significantly impacts the risk-taking behavior of financial institutions regarding debit card
ownership and debit card usage but insignificantly impacts with reference to mobile money accounts in South Asia.
Moreover, the analysis proved that fintech-based financial inclusion positively impacts the risk-taking behavior of
financial institutions, and there are significant differences in the relationship between fintech-based financial
inclusion and the risk-taking behavior of financial institutions among the different countries in South Asia.