Basel III Capital Requirements and the Growth of Non‐Bank Financial Institutions in South Africa

ABSTRACT

We examine the relationship between the implementation of the Basel III accord and the growth of non‐bank financial institutions and fintech platforms in South Africa. Using difference‐in‐differences estimation procedures, we find evidence consistent with regulatory arbitrage . In particular, the imposition of minimum capital requirements is associated with stronger growth among constrained non‐bank financial institutions relative to their unconstrained peers. Similarly, country‐level estimations show that tighter minimum capital restrictions are associated with the growth of fintech platforms in South Africa, whereas innovation appears to be an important factor associated with the growth of fintech ventures in selected African economies. Our results highlight the need for targeted policies that enable and sustain a vibrant fintech ecosystem.