Regulatory Requirements and Financial Inclusion in FinTech Companies

Regulatory Requirements and Financial Inclusion in FinTech Companies

Lilian Gichuru, Juliana M. Namada
Copyright: © 2022 |Pages: 13
DOI: 10.4018/IJAMTR.300345
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Abstract

The general objective of the study was to establish the influence of regulatory requirements on financial inclusion in Fintech Companies. Specifically, the study assessed the effects of customer protection and investor protection regulations on financial inclusion. This study adopted a descriptive research design. The target population was 38 Fintech companies. A population of 435 managers in Fintech companies were targeted. Stratified random sampling method was used to select the sample of 218 respondents. Primary data was collected using questionnaires. Pearson correlation coefficient and multiple regression was used in data analysis to establish the relationship between the variables. The study found that customer protection and investor protection regulations had significant relationships with financial inclusion. The study concluded that customer protection and investor protection were key attributes in financial inclusion in Fintech Companies and recommended that stakeholder regulations need a special focus in the management of Fintech companies.
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Introduction

Regulatory requirements play essential roles in society through regulation of market integrity, mitigating information asymmetry, minimizing negative externalities as well as prevention of distortions. These regulation requirements have the capacity of presenting unpleasant consequences through indirectly hampering the process of intermediation in the financial institutions as well as impeding the ability to provision of financial services (Kodongo, 2018). Countries attain market stability through establishing strong financial regulation. Although it is an essential move, it may be done at the cost of inclusive growth in most developing countries.

Financial systems cannot exist without effective regulation since this might cause instability in the financial sectors. The main goal of financial regulation is to ensure maintenance of financial stability as well as spurring of economic growth (Tobias, 2017). Ozili (2020) observed that regulation guards against irregularities and unfair actions. The main aim of ensuring consumer protection is to mitigate discriminative lending by financial entities. Investors who purchase securities either directly or indirectly through investment in mutual funds are protected by investor protection laws. One important focus of credit regulation is the general inclusion of the unbanked at the base of the pyramid (Anarfo, Abor & Osei, 2020). In essence it catalyses economic growth and development.

Globally, financial inclusion has been facilitated by the treasury department through ensuring expansion on the access to financial services for all individuals regardless of their status. This has been facilitated by dealing with the digital divide, fostering community development, ensuring financial capability, and encouraging partnerships (Baker & Wurgler, 2015). Regionally, financial inclusion has been a key policy objective to very many countries. Government agencies have shown interest through ensuring that they play an active role to facilitate financial inclusion with specific areas of rural finance availability, ensuring consumer protection and easing access to credit facilities by Small and Medium Enterprises (SMEs) (Sarma & Pias, 2012). In East African region, financial inclusion continues to deepen. With the high rate of financial inclusion, the focus is now based on how the private sector and the public sector can facilitate digital financial services as well as products (Spratt, 2015). Among the key catalysts for financial inclusion include technology, innovation and creativity.

A large percentage of people across the globe do not use formal financial services. According to World Bank (2020) approximately 42% of adult Kenyans had a financial account of some kind in 2011. According to the Global Findex database, the number had risen to 75%, including 63 percent of the poorest two-fifths (World Bank, 2017). Poor regulation is a major obstacle to financial inclusion. This is because, regulatory changes are often needed to enable the successful adoption and adaptation of innovations in digital finance, encourage their use, and increase competition among their providers, so that those new technologies can benefit the poor. Maina (2015) noted that progress in improving financial inclusion has to be compatible with the traditional mandates of financial regulation and supervision namely, safeguarding the stability of the financial system, and protecting consumers. On the same note Kumar, Rama and Rupayan (2019) noted that maintaining high integrity is one of the key roles of financial regulation.

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