FinTech and Good Governance as Catalysts for Financial Sustainability in SSA: Unveiling the Asymmetric Impact of Exchange Rate Volatility

<ns3:p>Purpose This paper will analyze how FinTech innovation and good governance influence financial sustainability in Sub-Saharan Africa and how the asymmetric role of exchange rate volatility affects this correlation. The research aims to elucidate the interaction between digital financial growth and institutional quality in the context of currency instability. Design/methodology/approach The analysis uses panel data from 25 Sub-Saharan African nations for 2004 and 2022. The empirical analysis uses cross-sectional autoregressive distributed lag (CS-ARDL) and nonlinear autoregressive distributed lag (NARDL) to capture long-run and short-run dynamics, as well as asymmetric impacts. Other tests carried out in the estimation strategy are cross-sectional dependence, slope heterogeneity, panel unit roots, cointegration and panel causality. Findings The results indicate that FinTech innovation enhances financial sustainability both in the short and long term. The positive and significant impact of good governance is also evident, showing that institutional quality reinforces financial resilience. Volatility in exchange rates has non-symmetric effects, with the effects of devaluation negatively affecting financial sustainability to a greater degree than those of overvaluation. The findings also indicate that FinTech performs better when exchange rates are favorable, and governance mitigates the negative impacts of exchange rate volatility. Conclusion The analysis is restricted to country panel data from 25 Sub-Saharan African economies and may be less sensitive to identifying bank-level heterogeneity and institutional variation within countries. Future research can build upon such work, including firm-level or bank-level data, and include other measures of digital finance and institutional quality. The findings imply that policymakers should foster FinTech growth alongside regulatory system improvements. Digital financial innovation gains can be strengthened by improving institutional quality, transparency and accountability. Stabilization of the exchange rate and risk-buffering policies also play a crucial role in safeguarding financial systems against external shocks.</ns3:p>