Fintech, Financial Inclusion and Risk Taking Behaviour: Role of Financial Freedom

Abstract

This study explores how Fintech and financial inclusion affect risk-taking behaviour in developing countries and considering how financial freedom plays a moderating role. Using data from 59 developing countries between 2000 and 2024, it uses panel regression to analyse the relationships between these variables. Results show that Fintech and Financial Inclusion significantly increase risk taking behaviour; a one standard deviation increase in Fintech / financial inclusion raises risk taking behaviour by 11.6% in countries with weak institutions. Financial freedom has two effects: it slightly increases risk directly but significantly reduces the positive impact of Fintech and financial inclusion on risk taking behaviour by up to 12.7% through market competition, regulatory flexibility, and transparency. Control variables show that Foreign Direct Investment consistently increases risk, younger populations are associated with stability and Financial Institutional Depth has complex risk implications. These findings explain the "FinTech-Inclusion Paradox" by showing that financial freedom acts as an institutional stabilizer, allowing economies to benefit from Fintech/Financial Inclusion, while reducing systemic risks. Policy recommendations include tiered regulation, behavioural safeguards, and cross-border risk monitoring to align financial innovation with stability and Sustainable Development Goals.