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FinTech
FinTech developments and their developments
heterogeneous effect on digital
finance for SMEs and
entrepreneurship: evidence 127

from 47 African countries Received 15 September 2023

Revised 2 February 2024
Accepted 18 April 2024
Bahati Sanga
University of Stellenbosch Business School, Stellenbosch University, Cape Town,
South Africa and African Development Bank, Abidjan, Cote D’Ivoire, and
Meshach Aziakpono
Department of Economics and Economic History, Rhodes University,
Grahamstown, South Africa

Abstract
Purpose – Lack of access to finance is a major constraint to the growth of small and medium-sized
enterprises (SMEs) and entrepreneurship in developing countries. The recent proliferation of mobile phone
services, access to the internet and emerging technologies has led to a surge in the use of FinTech in Africa
and is transforming the financial sector. This paper aims to examine whether FinTech developments
heterogeneously contribute to the growth of digital finance for SMEs and entrepreneurship in 47 African
countries from 2013 to 2020.
Design/methodology/approach – The paper uses a novel method of moments quantile regression,
which deals with heterogeneity and endogeneity in diverse conditions for asymmetric and nonlinear models.
Findings – The empirical results reveal that the rise of FinTech companies offering services in Africa
heterogeneously increases digital finance for SMEs and entrepreneurship in their different stages of growth.
FinTech developments have a strong and positive impact in countries with higher levels of digital finance
than those with lower levels. FinTech developments and digital finance positively and significantly influence
entrepreneurship in Africa, particularly in the nascent and transitional development stages of
entrepreneurship. Institutional quality has a considerable positive moderating effect when used as a control
rather than an interaction variable.
Practical implications – The results suggest the need to promote FinTech developments in Africa: to
provide a wide range of alternative digital finance schemes to SMEs and to promote entrepreneurship,
especially in countries where entrepreneurship is in the nascent and transitional development stages. The
results also underscore the need to promote FinTech development through supportive regulations and
institutional quality to reduce risks related to FinTech and digital financing schemes.

© Bahati Sanga and Meshach Aziakpono. Published by Emerald Publishing Limited. This article is
published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, Journal of Entrepreneurship in
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Vol. 17 No. 7, 2025
commercial purposes), subject to full attribution to the original publication and authors. The full pp. 127-155
terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode Emerald Publishing Limited
2053-4604
JEL classification – G20, G21, G23, O30, O50 DOI 10.1108/JEEE-09-2023-0379
JEEE Originality/value – To the best of the authors’ knowledge, this paper is one of the first attempts to account
for the often overlooked heterogeneity effects and show that the influence of FinTech developments is not
17,7 homogenous across the varying development stages of digital finance and entrepreneurship.

Keywords FinTech development, Digital finance, SME financing, Entrepreneurship

Paper type Research paper

128
1. Introduction
The financing of small and medium-sized enterprises (SMEs) and entrepreneurs continues to
receive attention among development partners, technology companies, policymakers and
regulators, academia and the financial sector, particularly in Africa. About 90% of African
enterprises are SMEs, contributing at least 30% of GDP and 80% of employment in informal and
formal sectors (London Stock Exchange Group, 2018). As of 2018, there were 48.2 million
informal and formal SMEs in Africa, compared to 17.2 million in Latin America and the
Caribbean (LAC) (SME Finance Forum, 2018). However, compared to other developing regions,
Africa has the highest percentage of financially constrained SMEs at 52%, whereas other
comparable developing regions such as LAC are at 22% (SME Finance Forum, 2018). Access to
finance significantly impacts the growth of SMEs and entrepreneurship (Moreira, 2016; Qin and
Kong, 2022). Entrepreneurs and SMEs in developing countries are characterised by information
opacity, which makes it difficult for financiers to assess their creditworthiness.
In recent years, there has been a growing interest among development partners, policymakers,
practitioners and researchers in understanding the potential effect of financial technology
(FinTech [1]) and emerging technologies in unlocking financing for entrepreneurship and SMEs.
FinTech developments are increasing the gathering and sharing of information, changing how
funds are mobilised and allocated and increasing capital-raising activities. The advancements of
FinTech are also influencing the proliferation of alternative financing schemes (digital finance [2]
in particular) that are distinct from traditional banking and capital markets. The credit market
landscape is becoming competitive, with traditional banks, alternative financiers and new
entrants actively using FinTech. The recent proliferation of mobile phone services, access to the
internet and emerging technologies have led to a surge in the use of FinTech in Africa and are
transforming the financial sector. In 2019, sub-Saharan Africa (SSA) exceeded the US$1bn
threshold for digital finance (Cambridge Centre for Alternative Finance, 2021). However, their
effect on SME financing and entrepreneurship has received less scholarly consideration in Africa.
Thus, this paper explores the following research questions:

RQ1. To what extent have FinTech developments heterogeneously increased digital

finance for SMEs in Africa?
RQ2. Do FinTech developments heterogeneously contribute to the growth of
entrepreneurship in Africa?
RQ3. To what extent do digital finance schemes for SMEs heterogeneously influence
entrepreneurship development in Africa?
RQ4. To what extent do institutional qualities moderate the impact of FinTech developments
on different levels of digital finance for SMEs and entrepreneurship in Africa?
To our knowledge, this is the first attempt in Africa to analyse the effect of FinTech
developments and their implication on digital finance for SMEs and entrepreneurship using
emergent cross-sectional data of FinTech development and digital finance from the
Cambridge Centre for Alternative Finance (CCAF [3]) database over the period 2013–2020.
 Despite the growing literature on FinTech and SME financing globally, very few studies are FinTech
empirical (Farag and Johan, 2021; Sanga and Aziakpono, 2023a). Second, there is a shortage of developments
longitudinal empirical studies on FinTech and SME financing. Out of the 62 global studies
reviewed by Sanga and Aziakpono (2023a), only five used country-level data (Abdeldayem and
Aldulaimi, 2021; Dikaputra et al., 2019; Hodula, 2022; Lorenz and Pommet, 2021; Rijanto, 2022).
The remaining studies are limited to a case study, specific country or platform. Third, despite the
rise of FinTech companies operating in Africa, empirical studies examining their effect on digital
129
finance for SMEs and entrepreneurship in Africa are pretty scanty. For example, out of 62 global
empirical publications on FinTech and SME financing for 2008–2022 (Sanga and Aziakpono,
2023a), only five were conducted in Africa and have limited coverage and scope. Three of those
empirical studies (Islam et al., 2018; Lorenz and Pommet, 2021; Mdoe and Kinyanjui, 2018) focus
on mobile money and lending to SMEs in East African countries. The other two (Kazaure et al.,
2021; Ochinanwata et al., 2021) explore reasons for SMEs’ adoption of crowd-funding in Nigeria.
Finally, the reviewed empirical literature has not addressed the heterogeneity effects, which in
this paper are referred to as different effects of FinTech developments across varying
development stages of digital finance and entrepreneurship. Understanding the heterogeneous
results is essential for policymakers in devising appropriate interventions depending on the level
of development of digital finance and entrepreneurship. Focusing only on the central tendencies
using conventional linear regression methods leaves the essential insights of the relationships
hidden when we are interested in knowing the heterogeneity of the relationships at the nascent,
transitional and mature stages (further discussion on the heterogeneity effects of FinTech
developments is presented in Section 4.2).
In recognition of these limitations, this paper contributes to the literature in several ways.
First, we examine to what extent the rising FinTech companies operating in Africa may have
increased digital finance for SMEs in 47 African countries. Second, we investigate the impact of
FinTech development on entrepreneurship in 30 African countries. Third, we analyse the extent
to which digital finance schemes for SMEs influence entrepreneurship in 30 African countries.
Fourth, we determine the heterogeneity effects of FinTech developments on different levels of
digital finance and entrepreneurship. In doing so, we are interested in knowing the heterogeneous
effects through various conditional quantile estimates across the distribution of digital finance
and entrepreneurship. This is important because the new insights and information from the
heterogeneous effects can help devise appropriate policies that promote FinTech development in
different African countries. Fifth, we scrutinise the moderating effects of institutional quality in
each case above. Finally, we provide focused policy recommendations. As far as we are aware,
this is also the first paper to account for the often overlooked heterogeneity effects of FinTech
developments across the varying distribution of digital finance and entrepreneurship by using
the novel method of moments quantile regression (MMQR) of Machado and Santos Silva (2019).
Besides dealing with heterogeneity and endogeneity, MMQR is considered the most robust
estimation method in diverse conditions for asymmetric and nonlinear models (An et al., 2021; Ike
et al., 2020).
The findings show that, first, the rise of FinTech companies offering services in Africa has
significantly increased digital financing delivered to SMEs. The impact is more prevalent in
countries with higher levels of digital finance than in those with lower levels. Second, FinTech
developments and digital finance have a positive and statistically significant impact on
entrepreneurship in Africa. Their influence is more dominant in countries with low
entrepreneurship levels or in a nascent and developing stage. Finally, institutional qualities have
a considerable moderating effect on FinTech and digital financing when used as a control rather
than an interaction variable. Thus, policymakers who play a vital role in supporting SMEs and
JEEE entrepreneurs who often face challenges in accessing traditional financing options can implement
17,7 policies that:

Foster the development of FinTech and inclusive digital financing solutions in Africa,
especially in countries where there is high level of digital finance extended to SMEs.

Promote FinTech development and digital finance in countries where
entrepreneurship is at the initial and transitional development stages.
130
The rest of this paper proceeds as follows. Section 2 provides the theoretical considerations. Section
3 presents a literature review. Sections 4 and 5, respectively, discuss the research methodology and
results. Finally, Section 6 provides the conclusion, policy recommendations and limitations.

2. Theoretical considerations and hypotheses development

Information asymmetry and financial intermediation theories underpin the financing of SMEs
and entrepreneurship. Credit market equilibrium is always affected by information asymmetry
(Besanko and Thakor, 1987; Stiglitz and Weiss, 1981). Thus, financial intermediation deals with
the transfer of risk and cost of transactions due to information asymmetry and market
imperfections (Allen and Santomero, 1998). Information asymmetry leads to adverse selection
in assessing borrowers (ex-ante moral hazards) and monitoring borrowers’ projects (ex-post
moral hazards) (Stiglitz and Weiss, 1981). The traditional financing models address the
information asymmetry through relationship lending (Boot, 2000; Liberti and Petersen, 2019;
Petersen and Rajan, 1995), credit rationing (Stiglitz and Weiss, 1981), increased cost of
borrowing and demand for collateral and guarantee to cover the loss in case of default (Besanko
and Kanatas, 1993; Besanko and Thakor, 1987; Diamond, 1984). Apart from transactional risks
and costs, under market imperfections, there are also costs associated with acquiring
information (Ncube, 2007). These costs are related to financial intermediation and the
production of information for assessing and monitoring SMEs and entrepreneurs to reduce
adverse selection and moral hazard problems. That is why interest rate mark-ups on SMEs’
loans in developing countries are higher than in developed countries, mainly due to SMEs’
information opaqueness (Beck et al., 2011; Berger et al., 2001; Brei et al., 2020).

2.1 FinTech developments and digital finance for small and medium-sized enterprises
FinTech developments have created a new dynamic of disintermediation known as alternative
financing schemes, whereby savers can now deal with investors directly with reduced transaction
costs and information asymmetry. Unlike traditional financing models, which use their equity
and funding raised through securitisation, alternative financing schemes are based on the agency
model, which does not retain risk on their balance sheet, generates revenue from fees, and
therefore does not need capital adequacy and reserve regulations like banks (Navaretti et al., 2018;
Thakor, 2020). Alternative financing schemes are based on big data and decentralised matching
of lenders and borrowers, while long-term relationships and a history of transactions drive bank-
based lending. The paper focuses on digital finance as one of the alternative financing schemes.
Digital finance relates to a wide range of digital lending and capital-raising options available to
SMEs, such as marketplace (peer-to-peer) lending (P2P), crowd-funding, crowd-lending, crowd-
investing, initial coin offerings (ICOs), blockchain-based securities and lending systems, mobile
money and credit schemes, big data and analytics-based financing and artificial intelligence (AI)-
based credit schemes. Second, FinTech has the potential to help financiers mitigate SMEs’ credit
risks associated with information asymmetry and lack of collateral, but it can also reduce lenders’
cost and time to collect information and assess SMEs’ creditworthiness (Abbasi et al., 2021;
Larios-Hernandez, 2017). Financially constrained and innovative SMEs are likely to seek digital
finance schemes because they are easier to access with simple and rapid lending processes and FinTech
have flexible loan amounts with lower transactional costs and lending rates compared to developments
traditional banks, among others (Purnamasari et al., 2020; Rokhim et al., 2021; Rosavina et al.,
2019; Spatia et al., 2021; Temelkov and Samonikov, 2018; Xiang et al., 2021). Based on FinTech’s
capabilities in creating alternative financing schemes and mitigating SMEs’ information opacity,
it is expected that FinTech developments will promote more digital finance schemes for SMEs:

H1. FinTech developments heterogeneously increase digital finance for SMEs in 131
Africa.

2.2 FinTech developments and entrepreneurship

Start-ups and small businesses face challenges accessing financing from financial
institutions because they have a history of transactions. Entrepreneurial activities are
constrained by a lack of financing and a conducive business environment (Beck and
Demirgüç-Kunt, 2006; Brixiova, 2013). FinTech has increased the accessibility and
affordability of financial services and products, reduced the cost and time to collect
information and assess borrowers, reduced infrastructure and operational expenses (Chen,
2020; Cull et al., 2018) and broadened lending techniques and geographical outreach (Cull
et al., 2018; Sanga and Aziakpono, 2022). Thus, distant entrepreneurs from traditional
financial institutions can access affordable financial services and products through mobile
phones and agents’ services. Second, FinTech developments have increased payment
methods, removing geographical limitations between entrepreneurs and their clients. This
payment convenience has increased the customer base for entrepreneurs and SMEs through
online sales. Thus, FinTech has the potential to foster entrepreneurship because of the
easiness of access to markets and easy and less costly digital payment methods (Huang
et al., 2023). Third, FinTech enables entrepreneurs to build transaction history and digital
footprints over time by using digital payment methods (Berg et al., 2020), which can be used
to access more financing in future. Finally, FinTech developments can overcome the
entrepreneurs’ information asymmetry problem through credible online verification of
information, social networks and big data [4] (Shah et al., 2022; Shao et al., 2022; Song et al.,
2021; Wang et al., 2020). Based on FinTech’s capabilities to increase the accessibility and
affordability of financial services to entrepreneurs, it is expected that FinTech development
will promote entrepreneurship in Africa:

H2. FinTech developments heterogeneously facilitate the growth of entrepreneurship

in Africa.

2.3 Digital finance for small and medium-sized enterprises and entrepreneurship
The empirical evidence shows that digital finance is significantly overcoming the
limitations of traditional financing to SMEs and entrepreneurs (Chen and Yoon, 2022; Xie
and Liu, 2022; Zhang et al., 2022; Zhang et al., 2023) and is substantially expanding in
financial markets where SMEs and entrepreneurs are less likely to be reached by traditional
banks (Barkley and Schweitzer, 2021; Gopal and Schnabl, 2022). Second, digital finance can
widen access to finance and promote innovation and industrial upgrading (Zapata-Cantu
et al., 2023). Thus, digital finance can potentially stimulate entrepreneurship through
increased access to financing that enables SMEs to pursue different entrepreneurial
activities:
JEEE H3. Digital finance for SMEs heterogeneously influences entrepreneurship development
17,7 in Africa.

2.4 Institutional quality and FinTech development

Finally, despite the benefits of FinTech in promoting SME financing, there are potential
risks associated with FinTech, which may be due to poor regulation. These risks include
132 fraudulent capital-raising activities, misappropriation of assets in crowd-investing,
information monopoly and overload, biases stemming from the use of big data and
analytics, default, illiquidity, cyberattacks, lack of transparency and access inequality (Frost
et al., 2019; Hua and Huang, 2021; Jagtiani and John, 2018). Fraudulent and illegal FinTech
transactions may create systemic risk because the risks can spread quickly and broader due
to many participants scattered in different geographical areas. The case examples of
fraudulent and illegal FinTech activities were observed in emerging economies by Kharisma
(2021) in Indonesia, Chatterjee (2019) in India and Hua and Huang (2021) in China. These
authors argue that if such risks are not mitigated, this could erode FinTech’s potential gains
and affect consumer protection and financial stability. In most African countries, digital
finance schemes are either unregulated, casually regulated, fully regulated or prohibited.
The discussed FinTech risks and unregulated FinTech activities may negatively impact the
financial system and disrupt competition in small business lending (Jagtiani and John, 2018;
Jagtiani and Lemieux, 2016). The empirical evidence shows that regulations increase
stability and transparency and reduce risks for digital finance and online credit markets
(Zhang et al., 2022). Furthermore, empirical evidence indicates that institutional qualities
create a level playing field in financial markets (Herger et al., 2008) and were found to
influence financial deepening in Africa (Sanga and Aziakpono, 2023b). Institutional qualities
and regulations can support or suppress financial innovation and expansion of digital
finance. Thus, the interaction of FinTech development and institutional quality may
positively or negatively affect digital financing for SMEs and entrepreneurship. We use
institutional qualities to test the mediating effect of FinTech developments on digital finance
for African SMEs and entrepreneurship:

H4. The interaction of FinTech development and institutional quality may positively or
negatively affect digital finance for SMEs and entrepreneurship.

3. Literature review
This literature review is organised into four strands based on the relationships defined in
Section 2 and the conceptual framework shown in Figure 1.

H1 , H4 Digital Finance for SMEs H3 , H4

Low
Medium
High

Nascent
Transional
Nascent Mature
Transional
Mature
FinTech Developments , Entrepreneurship
2 4
Figure 1.
Conceptual Source: Authors’ own work
framework
3.1 FinTech developments and digital finance for small and medium-sized enterprises FinTech
This strand of literature posits that FinTech developments help mitigate information developments
asymmetry and reduce transaction costs, thus alleviating financing constraints for SMEs.
Xiao et al. (2022) found that blockchain-driven supply chain finance addresses the financing
problems of SMEs by reducing the information asymmetry in China. The authors used the
entropy weight method [5] to analyse the supply chain operations of SMEs in the
manufacturing industry. Shao et al. (2022) examined the effect of AI finance on non-state-
owned firms using a cash flow sensitivity model, which is the interaction of changes in cash 133
holding and the digital finance inclusive index (as a proxy of AI finance). The authors
established that AI finance alleviates financing constraints for small, non-state-owned firms
in China. Lin et al. (2022) found that digital finance reduces two-way information asymmetry
between lenders and borrowers, alleviates financing constraints and promotes the
investment behaviour of micro and small enterprises. The authors used probit and binomial
regressions to analyse the dummy of digital payment from FinTech companies as a proxy
for digital finance. Zhang et al. (2022) examined the provincial data in China using fixed
effects and 2SLS and showed that FinTech promotes direct financing to SMEs and increases
financial disintermediation in China. The authors constructed a regional FinTech indicator
using FinTech applications, industry and environment index. Yao and Yang (2022)
analysed SME data from the Chinese growth enterprise market and found that digital
finance alleviates financing constraints and stimulates innovations among SMEs. Several
studies used the China Stock Market and Accounting Research (CSMAR) database and
digital finance index from the Digital Finance Research Centre of Peking University. For
example, Xia et al. (2022) found that digital finance increases SMEs’ access to bank debt
financing, reduces financing costs and constraints and reduces SMEs’ resilience to other
shocks such as COVID-19. The authors also used the number of provincial Fintech
companies to measure digital finance for robustness check. Other empirical studies that
found similar results in China that digitally alleviate financing constraints include Chen and
Yoon (2022), Li et al. (2022a) and Huang et al. (2022). Song et al. (2021) established that digital
platforms using big data analytics helped SMEs in China to obtain supply chain finance.
These findings were obtained after analysing data in the mobile production industry using
neural network algorithms and multiple regressions.
These former studies focus on China only. There are a few studies from other regions.
Rijanto (2022) found that SMEs can use crowdfunding with the success of 44% of
fundraising targets in creative industries in seven Southeast Asian countries using OLS.
Using OLS, Eldridge et al. (2021) established that crowd-investing significantly impacts
SME financing, performance and growth in the UK after analysing SME data sourced from
Crowdcube and Techcrunch for 2014–2020. Using mobile money and mobile banking
increases SMEs’ probability of accessing informal and formal credit in Kenya (Mdoe and
Kinyanjui, 2018). Using 2012–2013 data from World Bank Enterprise Surveys and 2SLS and
bivariate probit model, Lorenz and Pommet (2021) found that using mobile money by small
businesses in East Africa helps reduce credit constraints.

3.2 FinTech developments and entrepreneurship

Few empirical studies explore the relationship between FinTech development and
entrepreneurship. Yue et al. (2023) used multiple regression methods (SYS-GMM, PSM and
2SLS) to analyse data from Wind and CSMAR databases from 2011 to 2021. The authors
measured corporate innovation and entrepreneurship by number of patent applications.
Their analysis revealed that FinTech developments significantly influence corporate
innovation and alleviate corporates’ financing constraints, leading to the growth of
JEEE corporate entrepreneurship in China. Kedir and Kouame (2022) used a probit model to
17,7 analyse FinScope consumer survey data in Burkina Faso in 2016 and Cameroon in 2017 and
found that FinTech influences women’s entrepreneurship. The authors used women’s
business ownership or self-employment to measure entrepreneurship. The study limited the
measure of FinTech development to using mobile money only. Abdeldayem and Aldulaimi
(2021) established that crowdfunding platforms increase entrepreneurial finance in seven
134 Middle East countries.

3.3 Digital finance and entrepreneurship

Several empirical studies examine the impact of digital finance for SMEs on
entrepreneurship. However, these studies are concentrated in a single country, China. Wu
and Wu (2023) examined the China Household Finance Survey (CHFS) data for 2017, 2019
and 2021 using FE, IV-Probit and IV-2SLS. The authors measured household
entrepreneurship by a dummy variable of whether a family is self-employed or running a
business, and digital finance measured by the dummy variable of whether the family uses
digital payments, digital credit and digital money management. The authors found that
digital finance promotes household entrepreneurship by enhancing entrepreneurial
behaviour and alleviating financing constraints. Mao et al. (2023), Hu et al. (2023) and Ding
et al. (2023) obtained similar results using CHFS data and the digital finance index from
Peking University. In contrast, Li et al. (2022a) found that digital finance negatively and
significantly impacts migrants’ entrepreneurship by analysing the China Migrants Dynamic
Survey data using logit models. These studies limited their analysis to self-employment and
family entrepreneurship in China.
Gao et al. (2022) used the digital finance index from Peking University to measure digital
finance and the number of new enterprise registrations to measure entrepreneurship in 284
Chinese districts from 2011 to 2019. The authors used FE and IV models for analysis and
revealed that digital finance significantly promotes entrepreneurship by usage depth,
coverage breadth and digitalisation level. Zhang and Pang (2023) found the same results
that digital finance promotes urban entrepreneurship (sum of new private enterprises) and
household entrepreneurship (new self-employed households) in China. Sun and You (2023)
used the China Regional Innovation and Entrepreneurship Index data to examine the impact
of digital finance on innovation and entrepreneurial activities in 41 districts from 2011 to
2020. The author conducted their analysis using multiple regression methods and
established that digital finance significantly increases innovation and entrepreneurial
activities in Chinese districts.

3.4 Institutional quality and FinTech developments

The last strand of literature explores the moderating effect of institutional qualities. This
strand of literature is very limited. Haddad and Hornuf (2019) examined data from 5,588
FinTech start-ups from 55 countries from 2006 to 2014. Their analysis revealed that the
strength of legal rights and regulations significantly impacts the formation of FinTech start-
ups. Kowalewski et al. (2022) analysed the FinTech credit market growth data from 94
countries from 2013 to 2019. They found that institutional qualities (political stability,
control of corruption, rule of law, contract enforcement and insolvency framework) influence
the development of the FinTech credit market. Cornelli et al. (2023) obtained similar results
that institutional attributes (investor protection disclosure, efficient judicial systems and
ease of starting a new business) significantly impact FinTech developments and digital
finance.
3.5 The existing gap in the reviewed literature FinTech
Previous empirical studies on FinTech development, digital finance to SMEs and developments
entrepreneurship are comprehensive but have some limitations. First, most are limited to a
country, case study, platform or specific locality. The reviewed studies offer robust
empirical evidence only from China. Thus, extending the empirical analysis to developing
economies, particularly Africa, will have valuable implications. Second, most of the
reviewed empirical studies on digital finance analyse household entrepreneurship using
“self-employed workers”, limited to sole proprietorships, partnerships, cooperatives and
135
contributing family workers. This paper uses a different measure of entrepreneurship, “new
business density”, which significantly impacts job creation in Africa (Eid, 2006; Malchow-
Moller et al., 2011; Malfense Fierro et al., 2018). Third, almost no studies in Africa address
this subject with a broad scheme of digital finance, except a few on mobile money. Finally,
the reviewed studies use the mean estimation methods and do not explain the heterogeneity
of the relationships between the dependent and explanatory variables. This leaves some
insights into the relationships unknown. This paper bridges the gap by analysing the
following:

Cross-country data and focusing on 47 African countries where studies are limited.

Data from the CCAF database that comprises different alternative financing
schemes and FinTech companies. This paper is one of the first studies in Africa
using the number of FinTech companies, which is a closer measure of FinTech
development.

Entrepreneurship data is based on “new business density”, which has a broader
impact on job creation than the “self-employed workers” proxy.

The moderating effect of institutional quality as regulations on FinTech are
considered essential for stability and innovation.

Heterogeneous effects at various conditional quantiles distribution of the FinTech
developments on digital finance and entrepreneurship.

4. Methodology
4.1 Data
To assess the linkages between the rise of FinTech companies, digital finance to SMEs and
entrepreneurship, we use yearly data from 47 out of 54 countries in Africa over the period
2013–2020 from three different sources: the number of FinTech companies and the volume
of digital finance to SMEs were obtained from CCAF’s Global Alternative Finance Database;
macroeconomic control variables and new business density were obtained from the World
Development Indicators (WDI); and institutional quality variables were obtained from the
World Governance Indicators (WGI). The seven African countries excluded in this study
because of the unavailability of complete data are Djibouti, Eritrea, Ethiopia, Libya, São
Tom
e and Principe, Somalia and South Sudan.
The first dependent variable is digital finance to SMEs (DFSit), which is the actual
volume of transactions channelled to SMEs in US$ through digital lending and digital
capital-raising activities per country per year. This includes digital financing services such
as P2P business lending, crowd-lending, crowd-investing, crowdfunding (reward-based) and
others, as recorded by CCAF. We take a logarithmic transformation of DFS values for the
analysis. Other authors used different measures of digital finance, such as the digital finance
index [6] from the Digital Finance Research Centre of Peking University (Yao and Yang,
JEEE 2022), digital payment (Lin et al., 2022), FinTech lending based on different platforms (Chen
17,7 et al., 2022) and mobile money (Lorenz and Pommet, 2021).
The second dependent variable is entrepreneurship (ENTit). Previous studies use
different proxies to measure entrepreneurship: new business density (the number of newly
registered corporations as a limited liability in the calendar year per 1,000 people aged
15–64 years) (Dutta and Meierrieks, 2021); the number of patent or trademark applications
136 per year (Dutta and Meierrieks, 2021; Yue et al., 2023); new company formation rate (Chen,
2014; Malchow-Moller et al., 2011); the number of self-employed workers (employees
working with one or a few partners or in cooperatives on their account) (Malchow-Moller
et al., 2011); and newly registered entities for value-added tax (Malchow-Moller et al., 2011).
This paper uses “new business density” from WDI as a proxy of entrepreneurship,
consistent with Dutta and Meierrieks (2021). This proxy has a vast impact on job creation.
The primary explanatory variable is FinTech developments (FINTECHit), proxied by the
number of FinTech companies. Empirical studies use different measures and proxies for
FinTech, such as the digital inclusive financial index from the Digital Finance Research
Centre of Peking University (Chen and Yoon, 2022; Xie and Liu, 2022), internet, mobile
phone and broadband penetration (Hodula, 2022; Sheng, 2021), the number of FinTech
companies (Huang, 2022), FinTech applications and services (Zhang et al., 2022) and digital
lending platforms (Chen et al., 2022). Based on data availability in most African countries,
we use the number of FinTech companies operating in each country as the proxy of FinTech
developments from the CCAF database [7].
GDP per capita (GDPGit), trade openness (TRADEit) and inflation (INFit) are used in this
study as macroeconomic control variables. The institutional quality index (INSTit) is a
moderating variable constructed using principal component analysis (PCA) [8] from WGI
indicators, which are political stability, control of corruption, voice and accountability,
government effectiveness, regulatory quality and the rule of law.

4.2 Model and estimation methods

Based on Sheng (2021) and Dutta and Meierrieks (2021), we define the following estimation
equations and sub-equations with the mediating effects of institutional quality:

DFSit ¼ b0 þ b1 FINTECHit þ b2 COit þ mit (1)

DFSit ¼ b0 þ b1 FINTECHit þ b2 INSTit þ b3 COit þ mit (2)

DFSit ¼ b0 þ b1 FINTECHit þ b2 FINTECHit  INSTit þ b3 INSTit þ b4 COit þ mit (3)

ENTit ¼ b0 þ b1 FINTECHit þ b2 COit þ mit (4)

ENTit ¼ b0 þ b1 FINTECHit þ b2 INSTit þ b3 COit þ mit (5)

ENTit ¼ b0 þ b1 FINTECHit þ b2 FINTECHit  INSTit þ b3 INSTit þ b4 COit þ mit (6)

ENTit ¼ b0 þ b1 DFSit þ b2 COit þ mit (7)

 ENTit ¼ b0 þ b1 DFSit þ b2 INSTit þ b3 COit þ mit (8) FinTech
developments
ENTit ¼ b0 þ b1 DFSit þ b2 DFSit  INSTit þ b3 INSTit þ b4 COit þ mit (9)

where DFSit represents digital finance to SMEs, FINTECHit is FinTech development, ENTit is
entrepreneurship, INSTit is institutional quality, COit is a vector of macroeconomic control
variables (GDP growth, trade openness and inflation), b and mit are parameters and error vectors’ 137
i ¼ 1 . . . n is the number of countries and t ¼ 1 . . . T is the number of years in the panel.
Unlike previous empirical studies on FinTech and SME financing, this paper goes
beyond the mean estimation methods by applying quantile regression (Koenker and Bassett,
1978) to obtain an insightful characterisation of the relationships between our dependent
variables (DFSit and ENTit) and independent variable (FINTECHit) across the varying
distribution of DFSit and ENTit. The conventional mean regression methods explain the
average change on DFSit and ENTit due to change on FINTECHit. This provides a good
explanation of the relationships, but focusing only on the mean can limit the results when
we are interested in knowing the heterogeneity of the relationships. Thus, the quantile
regression model manages outliers and heterogeneous effects of FINTECHit by quantifying
changes across the distribution of DFSit and ENTit using conditional medians measured in
quantile differences (p quantile). The quantile regression is robust in estimating local effects
across the distribution due to changes in the independent variables. However, it does not
account for the unobserved heterogeneity of individual effects within the panel data. It,
therefore, suffers from incidental parameter problems (Lancaster, 2000). However, the
MMQR introduced by Machado and Santos Silva (2019) is an intuitive approach that
identifies unobserved heterogeneous covariance effects and manages endogenous
independent variables in panel data models. Besides dealing with heterogeneity and
endogeneity problems, MMQR produces robust estimates in diverse conditions for
asymmetric and nonlinear models (An et al., 2021; Ike et al., 2020). We follow the MMQR
model by Machado and Santos Silva (2019) to estimate the conditional quantiles QY (pjXit)
by combining estimates of the location and scale functions:


0 0
Yit ¼ ai þ Xit b þ di þ Zit g Uit (10)
n o
0
where P di þ Zit g > 0 ¼ 1 is the probability. The parameters to be estimated are defined
as (a, b 0 , d, g 0 ). The discrete i fixed effects are defined as (ai, di), i ¼ 1, . . ., n. Z describes the
k-vector of recognised components of X, which are distinguishable transformations with j
specified by: Zj ¼ Zj(X)j ¼ 1, 2, . . ., k. Xit and Uit are autonomously and evenly distributed
across individuals i, through time t, and are orthogonal to Xit. This satisfies the moment
criteria in Machado and Santos Silva (2019). Thus, equation (10) implies the following:
0 0
QY ð pjXit Þ ¼ ðai þ di qð pÞÞ þ Xit b þ Zit gqð pÞ (11)

where Xit contains all explanatory and control variables, which in this study are FINTECHit,
GDPGit, TRADEit, INFit and INSTit. QY (pjXit) is the quantile distribution of the dependent
variables Yit, which in this study are DFSit and ENTit conditional on location of explanatory
variable Xit. ai þ diq(p) is the scale coefficient showing the p quantile fixed effects across
individual i. Finally, q(p) is pth quantile estimated through resolving the subsequent
optimisation problem as:
 XX

JEEE Minimiseq
0
rp Rit  Zit gqð pÞ (12)
17,7 i t

where rp(A) ¼ (p–1) AI{A # 0} þ TAI{A > 0} indicates a check function.

Finally, we use the instrumental variable mean estimation method, a two-stage least-
squares (2SLS) regression (Anderson and Hsiao, 1982), for robustness checks. We use the
138 2SLS for robustness check because it is considered to be a robust method that addresses the
endogeneity problem; it is prevalent and commonly used in social science, management and
economics studies; and it is flexible and easily used in different research designs (Anderson,
2018).

5. Results
5.1 Descriptive statistics and diagnostic results
Table 1 presents the descriptive statistics of all the variables considered in this paper. As of
2019, each African country had at least 200 FinTech companies offering services. As of
August 2023, Kenya, Nigeria, South Africa, Uganda and Ghana were the top five countries
with the highest number of FinTech firms serving in their financial markets. Kenya had the
highest number, with 399 FinTech firms in the country in 2021. As for digital finance to
SMEs, the countries that reached more than US$10m per single year are Kenya, Nigeria,
South Africa, Uganda and Rwanda. Nigeria reached the highest of all countries in digital
finance to SMEs, with US$35m in 2016. We use logarithmic transformation for the number
of FinTech firms, the amount of SMEs’ digital finance and the new business density for
analysis.
Table 2 shows a strong correlation between FinTech developments and digital finance
extended to SMEs. Figure 2 illustrates the trend of FinTech developments in Africa from 53
FinTech firms in 2010 to 578 in 2023.
Table 3 indicates the diagnostic results, which confirm the absence of multicollinearity,
endogeneity and autocorrelation. The heteroscedasticity and normality tests confirm that
the residuals are neither homogeneous nor normally distributed. Furthermore, the Hausman
test confirmed fixed effects. Thus, MMQR with multiple fixed effects is a robust method for
our data set, as discussed in Section 4.2.

5.2 Empirical results and discussions

5.2.1 FinTech developments and digital finance to small and medium-sized enterprises.
Tables 4 and 5 present the results of the heterogeneous effect of FinTech developments on
digital finance to SMEs using MMQR without and with macroeconomic control variables.

Variables Definition Obs Mean SD Min Max

FINTECHit The logarithm of the number of FinTech firms 251 4.858 0.429 4.111 5.961
DFSit The logarithm of the amount of SMEs’ digital finance 251 10.2 3 1.884 17.376
ENTit The logarithm of new business density 179 0.524 1.551 4.758 3
INSTit Index of institutional qualities (using PCA) 251 0 2.16 4.51 5.88
GDPGit GDP growth (%) 251 3.73 3.60 20.60 20.72
TRADEit Trade openness (%) 251 70.27 29.85 16.35 220.24
INFit Inflation (%) 251 6.34 15.07 2.89 226.91
Table 1.
Descriptive statistics Source: Authors’ own work
No. Variables 1 2 3 4 5 6 7
FinTech
developments
1 FinTech development 1
2 Digital finance 0.260*** 1
3 Entrepreneurship 0.035 0.147* 1
4 Institutional quality 0.056 0.025 0.632*** 1
5 GDP Growth 0.232** 0.093 0.235** 0.038 1
6 Trade Openness 0.344*** 0.221** 0.240** 0.346*** 0.053 1 139
7 Inflation 0.154* 0.031 0.003 0.170* 0.293*** 0.130 1

Notes: *p < 0.05; **p < 0.01; ***p < 0.001 Table 2.
Source: Authors’ own work Correlation matrix

700

600

500

400

300

200

100
Figure 2.
The trend of active
0 FinTech firms
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 offering services in
Africa from
2010 to 2023
Sources: Authors’ own work; CCAF database

Diagnostic test Results p-value Results

Hausman test chi2(5) ¼ 25.70 0.0001 Fixed effect

Variance inflation factor (VIF) Mean VIF ¼ 1.16 There is no
VIF>10 or 1/VIF<0.1 1/VIF ranges between multicollinearity
0.785167 and 0.909075
Durbin and Wu-Hausman tests Durbin (score) chi2(1) ¼ 0.004613 0.9459 There is no
Wu-Hausman F(1, 244) ¼ 0.004484 0.9467 endogeneity
Breusch-Pagan/ Cook-Weisberg chi2(1) ¼ 7.17 0.0074 Presence of
test heteroscedasticity
Wooldridge test for autocorrelation F (1, 37) ¼ 0.754 0.3909 There is no
in panel data autocorrelation (no
serial correlation)
Skewness/Kurtosis tests for Chi2 (2) 0.0000 The data is not
normality normally distributed
Jarque-Bera normality test Chi2 (2) ¼ 1.8eþ04 0.0000
Table 3.
Source: Authors’ own work Diagnostic results
 17,7

140
JEEE

Table 4.

SMEs without
macroeconomic
development on

control variables
digital finance to
The effect of FinTech
MMQR
DFSit Location Scale Q(0.25) Q(0.50) Q(0.75) 2SLS

Panel A:
FINTECHit 3.111*** (0.420) 1.036*** (0.254) 2.297*** (0.486) 3.112*** (0.428) 4.075*** (0.479) 3.111*** (0.396)
Constant 4.912** (1.990) 2.915** (1.199) 2.621 (2.268) 4.915** (2.003) 7.624*** (2.239) 4.912** (1.933)
Panel B:
FINTECHit 3.097*** (0.420) 0.998*** (0.249) 2.317*** (0.485) 3.120*** (0.428) 4.049*** (0.475) 3.097*** (0.396)
INSTit 0.097 (0.076) 0.043 (0.045) 0.130 (0.086) 0.096 (0.076) 0.056 (0.085) 0.097 (0.079)
Constant 4.842** (1.984) 2.719** (1.178) 2.717 (2.263) 4.907** (1.997) 7.437*** (2.225) 4.842** (1.932)
Panel C:
FINTECHit 3.121*** (0.418) 0.989*** (0.250) 2.336*** (0.478) 3.123*** (0.426) 4.021*** (0.470) 3.121*** (0.395)
FINTECHit  INSTit 0.331 (0.203) 0.116 (0.121) 0.424* (0.229) 0.331 (0.203) 0.225 (0.226) 0.331* (0.193)
INSTit 1.497 (0.952) 0.519 (0.569) 1.909* (1.074) 1.496 (0.953) 1.025 (1.062) 1.497 (0.932)
Constant 4.970** (1.973) 2.693** (1.179) 2.833 (2.236) 4.976** (1.987) 7.421*** (2.207) 4.970** (1.926)
Observations 251 251 251 251 251 251

Notes: Standard errors in parentheses; ***p < 0.01, **p < 0.05, *p < 0.1
Source: Authors’ own work
 MMQR
DFSit Location Scale Q(0.25) Q(0.50) Q(0.75) 2SLS

Panel D:
FINTECHit 2.596*** (0.445) 0.836*** (0.278) 1.883*** (0.524) 2.663*** (0.446) 3.391*** (0.499) 2.596*** (0.405)
GDPGit 0.075 (0.052) 0.033 (0.033) 0.103* (0.061) 0.072 (0.052) 0.043 (0.059) 0.075 (0.047)
TRADEit 0.027*** (0.005) 0.009*** (0.003) 0.020*** (0.006) 0.028*** (0.005) 0.035*** (0.006) 0.027*** (0.006)
INFit 0.027** (0.011) 0.002 (0.007) 0.028** (0.012) 0.027** (0.011) 0.026** (0.012) 0.027** (0.011)
Constant 0.954 (2.266) 1.322 (1.417) 0.174 (2.652) 1.061 (2.261) 2.212 (2.544) 0.954 (2.174)
Panel E:
FINTECHit 2.387*** (0.420) 0.813*** (0.241) 1.698*** (0.483) 2.412*** (0.426) 3.162*** (0.466) 2.387*** (0.402)
INSTit 0.264*** (0.076) 0.095** (0.044) 0.345*** (0.087) 0.261*** (0.076) 0.173** (0.084) 0.264*** (0.079)
GDPGit 0.067 (0.052) 0.040 (0.030) 0.101* (0.059) 0.066 (0.052) 0.029 (0.057) 0.067 (0.046)
TRADEit 0.034*** (0.005) 0.003 (0.003) 0.031*** (0.006) 0.034*** (0.005) 0.037*** (0.006) 0.034*** (0.006)
INFit 0.033*** (0.010) 0.005 (0.006) 0.038*** (0.012) 0.033*** (0.010) 0.028** (0.011) 0.033*** (0.011)
Constant 0.534 (2.187) 1.543 (1.254) 1.842 (2.511) 0.485 (2.189) 0.937 (2.406) 0.534 (2.176)
Panel F:
FINTECHit 2.425*** (0.417) 0.819*** (0.241) 1.756*** (0.476) 2.445*** (0.423) 3.196*** (0.463) 2.425*** (0.401)
FINTECHit  INSTit 0.339* (0.192) 0.076 (0.111) 0.401* (0.218) 0.337* (0.192) 0.267 (0.212) 0.339* (0.183)
INSTit 1.368 (0.897) 0.276 (0.519) 1.593 (1.020) 1.361 (0.897) 1.108 (0.990) 1.368 (0.884)
GDPGit 0.0734 (0.051) 0.042 (0.030) 0.107* (0.058) 0.072 (0.051) 0.0342 (0.057) 0.0734 (0.046)
TRADEit 0.033*** (0.005) 0.004 (0.003) 0.030*** (0.006) 0.033*** (0.005) 0.037*** (0.006) 0.033*** (0.006)
INFit 0.036*** (0.012) 0.005 (0.006) 0.040*** (0.012) 0.036*** (0.011) 0.032*** (0.012) 0.036*** (0.011)
Constant 0.238 (2.160) 1.533 (1.250) 1.489 (2.456) 0.199 (2.164) 1.207 (2.387) 0.238 (2.171)
Observations 251 251 251 251 251 251

Notes: Standard errors in parentheses: ***p < 0.01, **p < 0.05, *p < 0.1
Source: Authors’ own work
developments

macroeconomic
SMEs with
digital finance to
Table 5.

control variables
development on
The effect of FinTech
141
FinTech
JEEE First, FinTech developments show a positive and strong relationship across all quantiles
17,7 (low, medium and high) of digital finance for SMEs at the 1% significance level with or
without control variables. These results confirm that the upsurge in digital finance delivered
to SMEs is due to the rise in FinTech firms offering services in African countries.
The second and third columns of Tables 4 and 5 show the parameter estimations of
location and scale functions, which maintain the linearity of the quantile and make it
142 possible to contrast the MMQR results with other estimates obtained from different
conventional linear methods. Second, location and scale parameters positively and
significantly affect digital finance at the 1% significance level. This suggests that the rise of
FinTech firms in African countries increases the average digital finance extended to SMEs
at a magnitude of 1.036 but also increases the dispersion of observed digital finance to SMEs
by 3.1. Table 5 shows similar results with different coefficients. The 2SLS results are the
same as the 50th percentile and the location function results, consistent with previous
empirical studies using mean estimation methods (Song et al., 2023; Zhang et al., 2022).
Third, the coefficients confirm the heterogeneous effect of FinTech development; they
increase from 2.297 to 4.075 as the percentile of digital finance to SMEs increases from 0.25
to 0.75 quantiles. Table 5 shows similar findings with different coefficients. The MMQR
results reveal more insights than previous studies (for example, Zhang et al., 2022) that
FinTech developments have a more substantial impact on high levels of digital finance for
SMEs, almost double, compared to low levels. The practical implication of these
heterogeneity results is that FinTech firms should strive to increase the variety of digital
finance services and products available to SMEs, as a shift from one quantile to another
increases the volume of digital finance for SMEs. As shown in descriptive statistics, the top
five countries (Kenya, Nigeria, South Africa, Uganda and Ghana) with the highest number of
FinTech firms serving in their financial markets are also the top five countries with the
highest volumes of digital finance provided to SMEs. This implies that policymakers in
countries with low levels of digital finance should create a conducive environment to attract
more FinTech firms to increase the supply of digital finance for SMEs.
Finally, institutional quality has a strong positive effect on digital finance for SMEs
when regressed as a control variable and macroeconomic control variables (see Table 5,
Panel E). The coefficients of institutional quality decline from 0.345 to 0.173 as the percentile
of digital finance to SMEs increases from the 25th to 75th percentiles. This shows that the
moderating effect of institutional quality in digital finance is non-monotonic, with a higher
impact on low levels than on high levels of digital finance. This is also evident in the
interaction of FinTech and institutional quality, which is positive and significant at low and
medium levels at 10% significance level (Table 4, Panel C and Table, Panel F). These
heterogeneity findings suggest that policymakers should implement sound institutional
qualities, which are more important at the initial stages of adopting FinTech and digital
finance services for SMEs, to ensure their growth and stability.
5.2.2 FinTech developments and entrepreneurship. Tables 6 and 7, respectively, indicate
the MMQR and 2SLS results of FinTech development impact on entrepreneurship with or
without macroeconomic control variables. The results show that FinTech developments
have an effect with opposite signs on the location and scale. The positive sign of the location
function suggests that FinTech developments increase the dispersion of the observed
entrepreneurship by 0.475 (Table 6, Panel A). The negative sign of the scale parameter
implies that the marginal benefits from FinTech development diminish as entrepreneurship
increases. In general, the MMQR results reveal that FinTech developments positively and
significantly influence entrepreneurship, with the coefficients of FinTech developments
declining as the percentiles of entrepreneurship increase. For example, when FinTech
 MMQR
ENTit Location Scale Q(0.25) Q(0.50) Q(0.75) 2SLS

Panel A:
FINTECHit 0.475* (0.264) 0.345** (0.167) 0.722** (0.286) 0.495* (0.264) 0.222 (0.298) 0.475* (0.265)
Constant 2.839** (1.322) 2.877*** (0.838) 4.898*** (1.451) 3.012** (1.326) 0.736 (1.505) 2.839** (1.296)
Panel B:
FINTECHit 0.570*** (0.196) 0.128 (0.123) 0.678*** (0.209) 0.573*** (0.196) 0.476** (0.229) 0.570*** (0.196)
INSTit 0.482*** (0.038) 0.0723*** (0.024) 0.544*** (0.040) 0.484*** (0.037) 0.429*** (0.046) 0.482*** (0.040)
Constant 3.302*** (0.972) 1.487** (0.610) 4.563*** (1.040) 3.342*** (0.968) 2.213* (1.159) 3.302*** (0.962)
Panel C:
FINTECHit 0.567*** (0.191) 0.119 (0.120) 0.669*** (0.204) 0.570*** (0.190) 0.478** (0.223) 0.567*** (0.198)
FINTECHit  INSTit 0.012 (0.091) 0.035 (0.057) 0.042 (0.097) 0.013 (0.090) 0.014 (0.105) 0.012 (0.097)
INSTit 0.538 (0.440) 0.240 (0.276) 0.745 (0.470) 0.545 (0.438) 0.359 (0.514) 0.538 (0.467)
Constant 3.290*** (0.947) 1.445** (0.595) 4.530*** (1.018) 3.332*** (0.942) 2.214* (1.134) 3.290*** (0.970)
Observations 179 179 179 179 179 179

Notes: Standard errors in parentheses; ***p < 0.01, **p < 0.05, *p < 0.1
Source: Authors’ own work
developments

macroeconomic
entrepreneurship
Table 6.

control variables
development on

without
The effect of FinTech
143
FinTech
 17,7

144
JEEE

variables
Table 7.

development on
entrepreneurship
with macroeconomic
The effect of FinTech
MMQR
ENTit Location Scale Q(0.25) Q(0.50) Q(0.75) 2SLS

Panel D:
FINTECHit 0.706** (0.292) 0.287 (0.180) 0.935*** (0.348) 0.695** (0.291) 0.457 (0.308) 0.706** (0.284)
GDPGit 0.059 (0.050) 0.064** (0.031) 0.008 (0.060) 0.062 (0.050) 0.115** (0.053) 0.059* (0.033)
TRADEit 0.013*** (0.005) 0.004 (0.003) 0.010* (0.006) 0.013*** (0.005) 0.017*** (0.005) 0.013*** (0.004)
INFit 0.008 (0.012) 0.001 (0.007) 0.009 (0.014) 0.008 (0.012) 0.008 (0.013) 0.008 (0.007)
Constant 4.610*** (1.704) 2.517** (1.048) 6.612*** (2.042) 4.514*** (1.700) 2.427 (1.811) 4.610*** (1.545)
Panel E:
FINTECHit 0.408 (0.268) 0.336* (0.181) 0.692** (0.271) 0.398 (0.268) 0.153 (0.331) 0.408* (0.218)
INSTit 0.496*** (0.049) 0.069** (0.033) 0.554*** (0.050) 0.494*** (0.049) 0.444*** (0.061) 0.496*** (0.044)
GDPGit 0.041 (0.050) 0.063* (0.034) 0.012 (0.051) 0.042 (0.050) 0.088 (0.062) 0.041 (0.025)
TRADEit 0.001 (0.003) 0.002 (0.002) 0.0002 (0.003) 0.002 (0.003) 0.003 (0.004) 0.001 (0.003)
INFit 0.008 (0.009) 0.001 (0.006) 0.009 (0.009) 0.008 (0.009) 0.007 (0.011) 0.008 (0.005)
Constant 2.301 (1.553) 2.872*** (1.050) 4.728*** (1.586) 2.220 (1.553) 0.120 (1.917) 2.301* (1.191)
Panel F:
FINTECHit 0.411 (0.280) 0.328 (0.201) 0.684*** (0.264) 0.411 (0.278) 0.159 (0.367) 0.411* (0.220)
FINTECHit  INSTit 0.013 (0.116) 0.0305 (0.083) 0.013 (0.109) 0.013 (0.116) 0.036 (0.154) 0.013 (0.098)
INSTit 0.434 (0.564) 0.214 (0.404) 0.613 (0.527) 0.434 (0.564) 0.270 (0.745) 0.434 (0.475)
GDPGit 0.040 (0.053) 0.062 (0.038) 0.011 (0.050) 0.040 (0.053) 0.088 (0.069) 0.040 (0.025)
TRADEit 0.001 (0.002) 0.002 (0.003) 0.0001 (0.003) 0.001 (0.004) 0.003 (0.005) 0.001 (0.003)
INFit 0.008 (0.009) 0.001 (0.007) 0.009 (0.009) 0.008 (0.009) 0.008 (0.012) 0.008 (0.006)
Constant 2.321 (1.630) 2.826** (1.168) 4.677*** (1.553) 2.320 (1.613) 0.150 (2.116) 2.321* (1.205)
Observations 179 179 179 179 179 179

Notes: Standard errors in parentheses; ***p < 0.01, **p < 0.05, *p < 0.1
Source: Authors’ own work
development is regressed with institution quality as a control variable (Table 6, Panel B), a FinTech
1% increase in FinTech development increases entrepreneurship by 0.678% at the 25th developments
percentile, 0.573% at the 50th percentile and 0.476% at the 75th percentile. Table 7, Panel D,
shows similar results when regressed with macroeconomic control variables. FinTech
developments significantly and positively impact entrepreneurship more at the lower than
the higher level. These findings suggest that the rise of FinTech firms in Africa strongly
affects the nascent stages of entrepreneurship. But, its effect diminishes as the growth of
145
entrepreneurship increases to maturity level. Given that entrepreneurship is still at the
nascent stage in most African countries, promoting FinTech development will help to
stimulate entrepreneurial activities. The findings of 2SLS (the mean estimation) are similar
to MMQR results for the location function and 50th percentile, which are aligned with
previous empirical studies (Kedir and Kouame, 2022; Yue et al., 2023) using the mean
estimation methods. This confirms the robustness of the MMQR results.
Finally, the institutional quality index has a significant and positive heterogeneous effect
on entrepreneurship when regressed as a control variable with or without macroeconomic
control variables. The coefficients of institutional quality diminish from 0.544 to 0.429 as the
percentile of entrepreneurship increases. These heterogeneity results imply that sound
institutional qualities are essential for the development of both FinTech entrepreneurship,
as they create confidence for entrepreneurs to use digital finance.
5.2.3 Digital finance and entrepreneurship. Tables 8 and 9 report the results of the
influence of digital finance extended to SMEs on entrepreneurship using MMQR without
and with macroeconomic control variables. First, the scale parameter in Tables 8 and 9 has a
negative but insignificant effect. In contrast, the location model has a positive and
significant impact on the dispersion of entrepreneurship when regressed with institutional
quality as a control variable (Table 8, Panel B) and with macroeconomic control variables
(Table 9, Panel D). The findings from 2SLS are similar to the location function and the 50th
percentile and consistent with previous studies on entrepreneurship (Li et al., 2022b; Mao
et al., 2023; Wu and Wu, 2023). This confirms the robustness of the MMQR results.
Second, digital finance delivered to SMEs has a positive and more substantial effect at lower
levels of entrepreneurship than at higher levels, with the coefficients decreasing from 0.088 at the
25th percentile to 0.066 at the 75th percentile (Table 8, Panels B and C). Similar results are
obtained when regressed with macroeconomic factors (Table 9, Panel D). These findings reveal
more information than the previous studies (Li et al., 2022b; Mao et al., 2023; Wu and Wu, 2023)
that the reliance on digital financing is more substantial at the nascent and transitional
development stages of entrepreneurship but reasonably declines as entrepreneurship increases
and becomes mature. Practically, this means that digital finance for SMEs helps entrepreneurs at
the nascent stage to build their assets and credit history, giving them more comprehensive access
to finance from financial institutions at the maturity level. The practical implication of these
heterogeneous results is that entrepreneurs and SMEs at the nascent stage would benefit from
the intensive promotion of digital finance services in African countries. Hence, policymakers
supporting entrepreneurs and SMEs that often face challenges in accessing traditional financing
at the nascent stage should promote digital finance services in their economies.
Finally, the institutional quality index significantly and positively affects entrepreneurship
when regressed as a control variable without macroeconomic control variables. The results
further show that institutional qualities have a moderating effect on digital finance extended to
SMEs, with a diminishing coefficient from 0.554 at the 25th percentile to 0.420 at the 75th
percentile (Table 8, Panel B). However, the institutional quality index has an insignificant
moderating effect when regressed with macroeconomic variables (Table 9). These
 17,7

146
JEEE

without

variables
Table 8.

macroeconomic
entrepreneurship
The effect of digital
finance for SMEs on
MMQR
ENTit Location Scale Q(0.25) Q(0.50) Q(0.75) 2SLS

Panel A:
DFSit 0.050 (0.039) 0.038 (0.025) 0.078* (0.043) 0.051 (0.039) 0.022 (0.044) 0.050 (0.040)
Constant 1.051** (0.446) 1.595*** (0.281) 2.239*** (0.499) 1.099** (0.456) 0.142 (0.519) 1.051** (0.433)
Panel B:
DFSit 0.077*** (0.029) 0.013 (0.018) 0.088*** (0.031) 0.078*** (0.029) 0.066** (0.033) 0.077*** (0.029)
INSTit 0.486*** (0.038) 0.080*** (0.023) 0.554*** (0.042) 0.489*** (0.038) 0.420*** (0.046) 0.486*** (0.040)
Constant 1.335*** (0.319) 1.015*** (0.196) 2.210*** (0.362) 1.372*** (0.322) 0.500 (0.396) 1.335*** (0.322)
Panel C:
DFSit 0.079*** (0.029) 0.016 (0.018) 0.092*** (0.031) 0.080*** (0.029) 0.066* (0.034) 0.078*** (0.030)
DFSit  INSTit 0.066 (0.098) 0.064 (0.061) 0.117 (0.105) 0.069 (0.097) 0.014 (0.115) 0.006 (0.014)
INSTit 0.805* (0.473) 0.388 (0.296) 1.113** (0.509) 0.821* (0.472) 0.484 (0.558) 0.549*** (0.145)
Constant 1.357*** (0.329) 1.036*** (0.206) 2.182*** (0.366) 1.401*** (0.330) 0.500 (0.414) 1.348*** (0.324)
Observations 179 179 179 179 179 179

Notes: Standard errors in parentheses; ***p < 0.01, **p < 0.05, *p < 0.1
Source: Authors’ own work
 MMQR
ENTit Location Scale Q(0.25) Q(0.50) Q(0.75) 2SLS

Panel D:
DFSit 0.115*** (0.042) 0.007 (0.026) 0.109** (0.051) 0.115*** (0.041) 0.121*** (0.043) 0.115*** (0.043)
GDPGit 0.073 (0.047) 0.060** (0.030) 0.025 (0.058) 0.078* (0.046) 0.127*** (0.049) 0.073** (0.032)
TRADEit 0.015*** (0.005) 0.006* (0.003) 0.010 (0.006) 0.015*** (0.005) 0.020*** (0.005) 0.015*** (0.004)
INFit 0.009 (0.012) 0.001 (0.008) 0.009 (0.015) 0.009 (0.012) 0.010 (0.013) 0.009 (0.007)
Constant 2.410*** (0.720) 0.847* (0.456) 3.087*** (0.884) 2.342*** (0.715) 1.643** (0.746) 2.410*** (0.665)
Panel E:
DFSit 0.063 (0.708) 0.024 (0.717) 0.083 (1.291) 0.063 (0.695) 0.045 (0.174) 0.063* (0.033)
INSTit 0.495 (0.951) 0.079 (0.964) 0.561 (1.671) 0.494 (0.899) 0.434* (0.226) 0.495*** (0.044)
GDPGit 0.049 (0.871) 0.058 (0.882) 0.001 (1.545) 0.049 (0.831) 0.093 (0.209) 0.049** (0.025)
TRADEit 0.001 (0.070) 0.001 (0.070) 0.0002 (0.128) 0.001 (0.069) 0.001 (0.017) 0.001 (0.003)
INFit 0.007 (0.167) 0.002 (0.169) 0.009 (0.307) 0.007 (0.165) 0.006 (0.041) 0.007 (0.005)
Constant 0.994 (12.00) 1.384 (12.16) 2.143 (20.83) 0.979 (11.21) 0.061 (2.817) 0.994* (0.521)
Panel F:
DFSit 0.065 (0.042) 0.028 (0.032) 0.087* (0.045) 0.066 (0.042) 0.044 (0.052) 0.063* (0.033)
DFSit  INSTit 0.031 (0.133) 0.073 (0.100) 0.091 (0.142) 0.034 (0.132) 0.024 (0.167) 0.003 (0.014)
INSTit 0.644 (0.639) 0.428 (0.481) 0.999 (0.680) 0.659 (0.634) 0.316 (0.798) 0.525*** (0.149)
GDPGit 0.049 (0.052) 0.057 (0.039) 0.001 (0.055) 0.047 (0.051) 0.093 (0.064) 0.049** (0.025)
TRADEit 0.001 (0.004) 0.001 (0.003) 0.0002 (0.004) 0.001 (0.004) 0.001 (0.005) 0.001 (0.004)
INFit 0.007 (0.012) 0.001 (0.008) 0.008 (0.011) 0.007 (0.011) 0.006 (0.013) 0.007 (0.006)
Constant 1.005 (0.704) 1.415*** (0.530) 2.178*** (0.751) 1.054 (0.691) 0.077 (0.864) 0.986* (0.524)
Observations 179 179 179 179 179 179

Notes: Standard errors in parentheses: ***p < 0.01, **p < 0.05, *p < 0.1
Source: Authors’ own work
developments

with macroeconomic
entrepreneurship
Table 9.

variables
finance on SMEs on
The effect of digital
147
FinTech
JEEE heterogeneity results suggest that sound institutional qualities are necessary for nascent
17,7 entrepreneurs to have confidence in adopting digital finance.

6. Conclusion and implications

This paper examined the heterogeneous:

effect of FinTech developments on digital finance extended to SMEs;
148
impact of FinTech developments on entrepreneurship in Africa;

influence of digital finance delivered to SMEs on entrepreneurship; and

moderating effect of institutional quality on the above cases.

We used the number of FinTech companies offering services in African countries as the
proxy for FinTech development and the amount of digital finance extended to SMEs in
African countries from the CCAF database from 2013 to 2020. Our heterogeneity analysis
revealed the following insightful results.
First, FinTech developments have a positive and more potent impact on high levels of
digital finance for SMEs, almost double compared to low levels. Thus, in answer to our first
research question, the results confirm the heterogeneous effect of FinTech development as they
increase from 2.297 to 4.075 when the percentile of digital finance for SMEs increases from 0.25
to 0.75 quantiles. Second, FinTech developments have positive and considerable effects in
countries where entrepreneurship is at the initial stages of development, but its effect
diminishes as the growth of entrepreneurship increases. A 1% increase in FinTech
development increases entrepreneurship by 0.678% at the 25th percentile, 0.573% at the 50th
percentile and 0.476% at the 75th percentile. Thus, as entrepreneurship develops, the marginal
benefits from FinTech development reduce relative to a lower level of entrepreneurship. Third,
digital finance for SMEs has a positive and more substantial influence at entrepreneurship’s
initial and transitional development stages but reasonably declines as entrepreneurship
matures. This answers our third research question, as the coefficients decrease from 0.088 at
the 25th percentile to 0.066 at the 75th percentile of entrepreneurship development. Finally,
institutional quality has a substantial positive moderating effect on FinTech developments, the
amount of digital finance for SMEs and entrepreneurship when used as a control rather than an
interaction variable. The moderating effect is more pronounced at the nascent stage of
entrepreneurship development, which answers our fourth research question. We suggest the
following practical and policy recommendations based on these heterogeneity findings.
First, FinTech firms should strive to increase the variety of digital finance services and products
available to SMEs in Africa, as a shift from one to another quantile increases the volume of digital
finance for SMEs. This is evident in countries such as Kenya, Nigeria, South Africa, Uganda and
Ghana, which have the highest number of FinTech firms operating in their economies, making
them the top five countries with the highest volumes of digital finance for SMEs. Second, helping
entrepreneurs and SMEs at the nascent stage of development use FinTech services will widen their
financing options and increase their entrepreneurial activities. Easy access to digital finance helps
nascent entrepreneurs and SMEs build their creditworthiness.
Consequently, policymakers and development partners, particularly in countries with
low levels of digital finance, should create a conducive environment, including sound
institutional qualities, to attract more FinTech firms and increase the supply of digital
finance for SMEs. Implementing policies that promote FinTech development and digital
finance services will stimulate alternative financing options for nascent African
entrepreneurs and SMEs, who often face challenges in accessing traditional financing. This
includes cutting down taxes and levies on digital transactions to make the services
affordable. In addition, policymakers and development partners should implement sound FinTech
regulations to encourage the adoption of digital finance. Sound regulation will also mitigate developments
the risks associated with FinTech development and adoption of digital finance.
This study contributes to the existing literature by revealing insightful empirical findings
from heterogeneity analysis using the novel MMQR method across varying development
stages of digital finance (low, medium and high) and entrepreneurship (nascent, transitional
and mature). However, it has some limitations. First, we measure FinTech development using
the number of FinTech firms operating in an economy. It will be interesting for future studies
149
to use a richer measure of FinTech development that accounts for digitalisation level, breadth
of coverage and usage when data becomes available. Second, our empirical analysis is based on
macro-level data. Therefore, future studies may explore firm-level data, including experimental
research using innovation hubs, incubators and accelerators. This could help explain how
SMEs, entrepreneurs and start-ups accessing digital finance perform over time. Finally, future
studies may focus on the effect of digital finance on SMEs’ growth, job creation and overall
impact on inclusive economic growth.

Notes
1. The Financial Stability Board (FSB) defines FinTech as “technologically enabled financial
innovation that could result in new business models, applications, processes, or products with an
associated material effect on financial markets and institutions and the provision of financial
services” (Bank for International Settlements, 2018, p. 8).
2. Digital finance refers to a wide range of digital lending and capital-raising options, such as
marketplace (peer-to-peer) lending (P2P), crowd-funding, crowd-lending, crowd-investing, ICOs,
blockchain-based securities and lending systems, mobile money and credit schemes, big data and
analytics-based financing and artificial intelligence (AI)-based credit schemes.
3. The Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge
Business School conducts survey and research on “the development of FinTech markets and industry
verticals, FinTech regulation and regulatory innovation, supervisory technology and its application
in financial authorities, digital assets and digital money”. CCAF has a database of FinTech
developments and digital activities such as digital lending and capital-raising options, etc.
4. Big data is described as information assets with five “V” dimensions: Volume (high volume of
data sets), Velocity (speed of collecting and processing data), Variety (variety of data sets),
Veracity (quality of data) and Value (data usefulness) (Onay and Öztürk, 2018).
5. The entropy method is a “mathematical method used to judge the dispersion degree of an index.
The greater the degree of dispersion, the greater the impact of the index on the comprehensive
evaluation” (Xiao et al., 2022).
6. This digital inclusive financial index is calculated using data from Yu’ebao and Alipay with
three dimensions: coverage (account coverage or number of users), usability (payment
transactions, money fund business, credit services, insurance services, investment portfolio, and
credit operations), and digitization (mobility, affordability and credibility) (Guo et al., 2019).
Alipay, owned by the leading e-commerce giant – Alibaba Group, is China’s largest third-party
online mobile payment system. Yu’ebao, a subsidiary of Alibaba’s Ant Financial Services Group,
is China’s largest money market fund used by more than 400 million individual investors.
7. CCAF database is an emergent database with rich cross-section data of FinTech companies and
digital finance which include digital lending, digital payments, enterprise technology provisioning,
digital capital raising, crypto-asset exchange, wealth-tech, insur-tech, digital banks, digital custody,
alternative credit analytics, digital savings and consensus services. The data sets start from 2010
onwards.
JEEE 8. We estimated the eigenvalues of the covariance matrix to obtain the eigenvectors (the principal
17,7 components). Then we obtained significant scores (principal components) based on Kaiser-rule of
eigenvalue equal to or greater than one. Based on this rule, only one component was selected.

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Corresponding author
Bahati Sanga can be contacted at: bahati@sun.ac.za and bjsanga@gmail.com

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