Asymmetric and Threshold Effects of Fintech on Poverty in SSA Countries

In this study, we analyze the effect of financial technology (FinTech) on a country’s ability to achieve the Sustainable Development Goals (SDGs) that relate to ameliorating extreme poverty by 2030. The study aims at analyzing the dynamic asymmetric relationship between FinTech adoption and poverty alleviation using system General Method of Moments (GMM) on annual data for 127 countries including 45 countries from the Sub-Saharan Africa (SSA) region over the period from 2004 to 2020. The likelihood of FinTech adoption is characterized using three measures: the number of mobile cellular subscriptions, the number of fixed broadband subscriptions, and the percentage of the population who use the Internet. We create a composite index for FinTech for all economies in our sample, which incorporates the principle component analysis on the three measures of FinTech. For the SSA countries, the outcomes of the study reveal that the relationship between the improvement of FinTech measures and poverty alleviation is nonlinear with an exact threshold level. More precisely, our results signify that improvement in FinTech may initially decrease the rate of extreme poverty, leading to a decrease in total poverty as a percent of the population. While there is an initial decrease in the rate of extreme poverty with improvements of FinTech, once the FinTech index reaches its threshold level of 37.18 points further improvement in FinTech tends to decrease as penetration increases, giving rise to an decrease in the rate of poverty alleviation. For the SSA countries, with an average level of FinTech of 21.48 points, policymakers should design more aggressive and comprehensive policies directed at recouping the maximum gains of FinTech adoption, with a reasonable threshold target