Impacts of FinTech innovations on financial inclusion in developing countries and the challenges they face - A case study on Sierra Leone.

Financial Technologies (fintechs) have experienced an expansive growth in many sectors over the last decade as a result of their dynamic business models which provide many unparalleled alternative and complimentary services to those that are being provided by the traditional financial institutions. Their proclivity towards affordability, accessibility, security, and better customer experience has the prospect of broadening the horizons of financial inclusion to incorporate many people who were excluded or underserved in the traditional financial system. Financial exclusion has been much prevalent in developing countries where the traditional financial systems have not adequately met the needs of the masses. Moving from this premise, this thesis seek to investigate the impacts of fintech innovations on financial inclusion in developing countries and the challenges they face together with a case study on mobile money in Sierra Leone. Different scholars are already attributing many financial benefits due to the growing adaptation of digitization in the delivery of financial services through innovations such as payment cards, fintech applications and mobile money services. Building on theory and past literature, this paper investigated the impacts of fintech on financial inclusion in developing countries using a multivariate regression model and a principal component analysis (PCA) on empirical data. In addition, a survey was done in Sierra Leone to investigate the usage and access to financial services, as well as the barriers that are preventing people from being in the formal financial system. Based on the results of the regression analysis, there was significant evidence that support a positive relationship between fintech indicators and financial inclusion. The results of the PCA show a high contribution of fintech indicators in the quality of representation analysis in the first two dimensions of the PCA. However, indicators that represent access to the traditional financial system such as number of commercial banks and number of ATMs have a much more significant influence on the first principal component. Thich shows that despite some evidence of the impact of fintech on financial inclusion, the fundamental basis of financial inclusion is still the traditional financial system. Furthermore, the results of the Sierra Leone survey shows 72% of all respondents do not own an account at a formal financial institution, an improvement from the 87% estimate from the 2017 Global Findex, and 94% of those without an account indicated that the reason for not having an account is due to insufficient funds. However, 67% of all respondent indicated that they have used mobile money services in 2019. This shows that with specified financial services, fintech has the potential to broaden the frontiers of financial inclusion to incorporate many who were excluded or underserved.