Fintech, Bank Risks, and Business Performance: From the Perspective of Inclusive Finance

Abstract

Recent years have seen an increasing integration of fintech and inclusive loans, leading to significant changes in banking business models and operations. The paper analyzes the impact of fintech on bank risks and performance. The research findings show the following results. First, fintech has made banks more willing to issue inclusive loans. Second, by leveraging fintech, banks have lowered the risks associated with inclusive loans and improved their performance, particularly manifested by inclusive loans to small and micro enterprises. Third, in regard to financial geographic heterogeneity, with the increasing distance between branches and sub-branches, and head office, fintech, as an effective regulating tool, can help to improve the inclusive loan operations and risk control capabilities of remote branches and sub-branches. This paper argues that digital financial inclusion contributes to the stable operation of banks; banks can take advantage of fintech to digitalize and intelligentize financial inclusion, thereby improving business efficiency, reducing risk exposures and expanding profitability. Therefore, banks should adhere to the “prudent and stable” risk appetite and “small and decentralized” credit granting principle to make safe, convenient and impartial inclusive finance services available to a variety of market entities. When implementing the inclusive finance development strategy, head office should consider different results among branches and sub-branches due to their varied financial geographic locations, and release differentiated assessment and incentive policies to branches and sub-branches based on economic regions in a bid to minimize policy spillovers.

Key words： fintech, digital financial inclusion, inclusive loans, bank risks, business performance