| Abstract: |
We build a model with a traditional banking system, endogenous entry of firms
and fintech intermediaries, and firm heterogeneity in credit access and usage
to study the credit-market, macroeconomic, and business cycle implications of
the recent sizable growth in the number of fintech intermediaries in emerging
economies. Our analysis delivers three findings. First, the impact of greater
fintech entry on firm financial inclusion depends on whether greater entry is
driven by lower entry costs for fintech intermediaries or lower barriers to
fintech credit for unbanked firms. Second, greater fintech entry can have
positive long-term macroeconomic effects. Third, greater fintech entry leads
to a reduction in output volatility but results in greater relative volatility
in bank credit and consumption. The effects of fintech entry on macro outcomes
and volatility hinge critically on the interaction between domestic financial
shocks and the reduction in fintech lending rates stemming from greater
fintech entry. Unless greater fintech entry leads to lower fintech credit
costs for firms, greater fintech entry will have no meaningful credit-market
or business-cycle consequences. |