HOW DO FINTECH AND GOOD GOVERNANCE INFLUENCES FINANCIAL SUSTAINABILITY: WHAT IS THE ROLE OF EXCHANGE RATE FLUCTUATION?

Abstract

The present-day financial universe is transforming at record speed due to numerous interrelated developments: technological advances, changes in the regulatory environment, and macroeconomic forces. An emerging focus on Financial Sustainability (FS) referred as the long-term capacity of financial systems to remain stable, efficient, and inclusive has therefore been an increasing priority for both advanced and developing economies. FinTech is taking up a major role in improving (FS), enhancing the efficiency of operations, making financial inclusions & strategic competitiveness of financial institutions a walk in the park. FinTech driven innovations like blockchain, artificial intelligence, and mobile banking make the processes a lot efficient, cost-effective, and inclusive by covering up the unbanked part of society, mainly in developing countries. However, it has also ushered in a plethora of challenges, particularly for traditional banks facing greater competition and potential market share loss. When innovation moves faster than regulation, it creates a more complex environment for compliance and risk management. In addition, practices of financial governance are uneven in their application through institutions, undermining performance and stability. Another area that is especially relevant for financial stability and sustainability of financial systems but faces challenges is exchange rate fluctuations. The nexus between financial and macroeconomic policies necessitates coordination of financial and macroeconomic policies to respond to economic shocks and sustain policy consistency. Trust deficits ensue and adoption of digital finance is further stifled, as the cloud opens new firestorms of data protection and cybersecurity issues. We will explore these dimensions through a combination of research on the effect that FinTech, governance practices, exchange rate management have on financial sustainability, and operationalize the policy recommendation for financial sector resilience. The primary objective of this research is to examine the multi-faceted effects of FinTech, good governance, and exchange rate fluctuation on FS. In particular, the paper examines the impact of FinTech as a moderator in operational efficiency, market expansion, and financial inclusions on overall financial performance of banks and sustainability. With an attempt to emphasize both short run and long run impacts of FinTech innovations on FS by analyzing their role in reducing transaction times and operational costs in contexts of blockchain and artificial intelligence, this paper seeks to explore this new landscape that is poised to have a far-reaching impact. It also aims at examining the many possibilities that FinTechs bring in terms of customer satisfaction and in generating new possibilities for financial interaction and participation, particularly in developing areas. The second goal is to analyze the effect of FS on good governance practices. The aim of this research is to study the direct and indirect effects of governance structures like board size, audit committee effectiveness, and ownership structure on the stability and growth of financial institutions. In doing so, it aims at highlighting how consistent and strategic governance contributes to enhancing resilience and performance as a whole. Third, it explains how strong governance mechanisms may mitigate financial risk exposures and how these then in turn affect broader economic variables namely FDI and trade openness. The paper also aims to study the impacts of changing exchange rates on FS with respect to its chances of profit and risk. Here, we will examine the positive and negative response of FS to the impact of the exchange rate shock, as the shock affects the exchange rate, and we will see that financial institutions can strategically respond to this dynamic. Coordination of financial regulations with macroeconomic policies can also generate additional synergy for the strengthening of financial systems, and will also be discussed in the paper. This research is based on the view that sustainable financial systems are essential for facilitating economic growth and resilience. With the digital innovation alongside economic volatility making the financial world a more complex and interconnected place, there is a missing piece in understanding how technology and governance interact and link with the broader economy. The study seeks to furnish pragmatic insights that could serve as a basis for the elaboration of adaptive strategies towards achieving financial sustainability to aid policy formulations by financial institutions and regulatory bodies. The research therefore aims to address these critical areas as part of contributing to the provision of resilient and inclusive financial systems that can circumvent any future crises, for sustainable economic stability and growth. The secondary data will be collected from the reliable sources like world bank, IMF, etc. and the objectives of this study is to investigate the impact of FinTech, good governance and exchange rate fluctuations on financial sustainability. This analysis includes multiple years to allow for both short-run and long-run effects. They employ sophisticated econometric models to investigate the association of FS with the variables, and make use of cointegration tests to show long-run relationships. As a result, the asymmetric models take into account both negative and positive shocks to better understand how they affect FS differently. The Granger causality tests demonstrate whether causality is one-way or two-way between FS and the other variables. Additional checks conducted on the analysis further validate the integrity of the models themselves, including identifying threats of multicollinearity and autocorrelation. It does note a list of limitations, such as data, inaccuracies and the unfeasibility of accounting for all external factors (like geopolitics, for instance). Despite these limitations, this method provides a holistic approach to grasp the nuanced effects of FinTech, GG and EXf on financial sustainability as well as practical and policy findings that other countries can examine while reinforcing their financial systems. This study provides significant evidence of a significant impact of FinTech, GG, and EXf on the FS. FinTech is a game-changing lever that enables FS to implement operational efficiency and lower the cost of transactions while improving financial inclusion. To provide evidence of improving banking operations, availability by utilizing digital platforms and enhancing customer experience by utilizing latest technologies such as block chain and artificial intelligence. The empirical evidence shows that FinTech significantly promotes FS in the short and long run and an increase of 1% in FinTech increases FS by 0.0923% in the long run and 0.0534% in the short run. Nevertheless, its benefits can only be maximal if proper strategic adaptation takes place in terms of the competition it creates for traditional banks, the challenges to regulatory frameworks and systemic risks it poses. The second is good governance, which strengthens stability, resilience, and efficiency of financial institutions. Higher corporate governance mechanisms, such as board and audit, positively correlate with performance. The FS positively reacts to a 1% rise in GG with a long-run response of 0.0212% and a short-run response of 0.0327%. Although the short-run impact of positive governance improvements is benign (i.e., they improve FS), the short-run impact of negative shocks tends to be adverse. Two way impact of FS on exchange rate fluctuation. Although a moderate degree of variability of the exchange rate may provide possibilities for profitability especially via trade and investment, large deviations of the same represent a risk. As can be seen from the results, a long-run growth of 0.0623% in FS boosts an increase of 1% in EXf whilst there reduces -0.0298% of the short-run growth of FS boost when EXf growing 1%. The inherent asymmetry in the EXf shock indicates caution in both positive and negative shocks in order to avoid risk. Policy integration is crucial, the study highlights, because of the need to balance FinTech development against strengthening governance frameworks and the need to better manage exchange rate volatility in this rapidly shifting dynamic. Bringing these pieces together, will play an important role in inducing a sustainable financial growth along with long-term stability. This paper is revolving around the idea of FinTech, good governance and swing exchange rate as leading the financial sustainability at the same time as this paper do therefore we hope our finding expand the literature. It showed the high positive coefficients of FinTech on operational efficiency and financial inclusions, sound governance as a critical success factor on financial stability, and the two nature of exchange rate fluctuation on financial performance. And the findings indicate that strategic policy adaptation is crucial to exploit these factors while avoiding their risks. Once a foundational understanding of this interrelation is developed through this study, utilizing the findings positively influences policymakers and financial institutions alike by advocating a composite and cohesive system that facilitates sustainable national finance. In order to address the gaps include for instance updating the regulatory frameworks to cope up with the rapid growth of FinTech, the need for robust data protection and cybersecurity measures to build trust, and financial literacy level to further increase the financial inclusion. Policymakers need to foster synergies between financial and macroeconomic policies, to manage exchange rate volatility and consistency in sectoral governance. Efforts to develop strategies that enable traditional banks to be competitive against the disrupting force of FinTech, through digital transformation and strategic partnerships, will also need to be prioritized. Moreover, a balance in policies between the short-run conduct of operations and long-run financial viability must be achieved in order for financial institutions to be a sustainable and competitive not only segment of the economy, but a true partner in economic growth.