Impact of fintech-centric financial inclusion on bank risk-taking: evidence from developing countries

Abstract This study examines the impact of fintech-driven financial inclusion on bank risk-taking behavior. We analyze unbalanced panel data from 660 banks across 40 developing countries between 2011 and 2021. Our findings derived from pooled OLS regression suggest that financial inclusion facilitated by fintech significantly reduces various types of bank risks: default risk decreases by 7.85%, leverage risk decreases by 9.23%, and portfolio risk decreases by 7.64%. These reductions are observed in the context of emerging mobile, internet, and agent banking services. The extent of these reductions varies depending on bank type, size, concentration, the institutional quality of the country, and different geographical regions. Our results remain consistent across multiple proxies and robustness tests, including panel-corrected standard errors (PCSE) estimation, two-stage least squares-instrumental variable (2SLS-IV) regression, two-step system generalized method of moments (GMM) estimation, and quantile regression (QR). However, the transformation toward fintech comes with significant challenges, such as large-scale investments, the need for financial literacy, and consumer protection—issues that policymakers, regulators, and financial institutions must address.