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

This study examines the effects of FinTech innovation and good governance on financial sustainability in 25 sub-Saharan African (SSA) countries over the period 2004–2022, with explicit attention to the asymmetric role of exchange rate volatility. Despite substantial growth in digital finance and governance reform efforts across SSA, macro-panel evidence examining the simultaneous and nonlinear effects of FinTech, governance quality, and exchange rate dynamics on systemic financial sustainability remains absent from the literature. This study directly addresses this gap. Using a balanced panel dataset and a comprehensive econometric framework, this study employs Cross-Sectional Autoregressive Distributed Lag (CS-ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) models to capture both long-run and short-run dynamics as well as asymmetric effects. The empirical strategy is supported by a sequence of diagnostic and pre-estimation tests, including slope heterogeneity, cross-sectional dependence, second-generation panel unit root tests, panel cointegration, and Dumitrescu–Hurlin panel causality analysis. The findings indicate that FinTech innovation and good governance contribute positively to financial sustainability operationalised using the country-level Bank Z-score in both the short and long run. Furthermore, exchange rate volatility exhibits asymmetric effects, with currency depreciation generating negative short-run effects on financial sustainability, while long-run structural adaptation partially moderates these adverse impacts. The study concludes that strengthening digital financial innovation, improving governance quality, and implementing effective exchange rate risk management policies are essential for enhancing the resilience and sustainability of financial systems in SSA.