The effects of Basel III capital and liquidity requirements on the growth of banking functions performed by non-bank financial institutions and fintech platforms in South Africa

We examine the effects of the implementation of the Basel III accord on the growth of non-bank financial institutions and fintech platforms in South Africa. Using a difference-in-difference estimation procedure, we find evidence of regulatory arbitrage, suggesting that the imposition of minimum capital requirements results in the growth of deposit-taking non-bank financial institutions. Our results are robust to alternative event windows and falsification tests. In contrast, country-level estimations show that tighter minimum capital restrictions constrain the growth of fintech platforms in South Africa, while innovation plays a crucial role in driving the growth and funding of fintech ventures in select African economies. Our results highlight the need for targeted policies that enable and sustain a vibrant fintech ecosystem.