Effect of corporate governance regulatory framework on performance of fintechs in Kenya

Abstract

The Fintech industry has emerged as a pivotal force in revolutionizing the financial landscape, especially with its technological innovations aimed at improving access to financial services, promoting financial inclusion, and driving economic growth. As the sector continues to grow, the role of corporate governance frameworks becomes increasingly important in determining the long-term performance and sustainability of Fintech firms. However, despite the impressive growth and the potential for further expansion, the Fintech industry in Kenya faces significant challenges such as regulatory challenges and cybersecurity risks that affect its overall performance. The general objective of the study was to assess the effect of corporate governance regulatory framework on the performance of Fintechs in Kenya. The specific objectives were to analyse the effect of data protection regulations on performance of Fintechs in Kenya, to assess the effect of Anti-Money Laundering regulations on performance of Fintechs in Kenya, to investigate the influence of lending regulations on performance of Fintechs in Kenya and to determine the influence of consumer protection regulations on performance of Fintechs in Kenya. The research was guided by three key theories: Agency Theory, Resource-Based View (RBV), and Institutional Theory. The study adopted a descriptive research design. The target population for this study consists of 269 key decision-makers in the Fintech companies. These comprised of; the Compliance Officers or Legal advisors, Chief Financial Officers and the operations managers. The study had a samples size of 161 determined through the Yamane formula. Stratified proportional random sampling was used to select the participants. The study used a structured questionnaire with closed-ended Likert scale questions. The data was processed and analyzed using SPSS (Statistical Package for the Social Sciences) software. Descriptive statistics, including mean, standard deviation, and frequency distributions, was used to summarize the data. To analyze the relationships between the regulatory framework and fintech performance, regression analysis was conducted. Ethical standards were strictly followed throughout the study. The study found that there is a statistically significant positive relationship between data protection regulations and performance of Fintechs (B=0.145, P=0.033). There was a positive and significant link between Anti-Money Laundering regulations and Fintech performance (B=0.203, P=0.004). The findings also showed a significant positive effect of lending regulation on Fintechs performance (B=0.186, P=0.023). The findings showed that consumer protection regulations had the highest positive impact on Fintechs performance (B=0.231, P=0.000). The study recommends that FinTechs in Kenya ought to invest in enhancing their data protection systems to enhance performance and establish trust. FinTechs should improve on aspects as KYC enforcement and employee training. FinTechs should also have strict credit evaluation procedures, follow the CRB regulations, and keep on revising their lending policies. FinTechs should also focus on consumer protection not only to be in line with the law but also to establish long-term customer relationships.