From Digital Payments to Bank Credit: Fintech, Information Asymmetry and Financial Inclusion of Small and Medium-Sized Businesses in Uzbekistan

Abstract

Over the past decade, these digital payment technologies have been adopted ever more widely, allowing sales and payments to be recorded more systematically across diverse business settings. The use of digital payments constitutes an effective way of recording business operations; however, the balance between expanding access to credit and controlling credit risk remains a key problem for banks serving small and medium-sized businesses. This study develops an analytical framework for incorporating digital payment records into the credit assessment process for small and medium-sized businesses, interpreting such records as an additional source of information that reduces information asymmetry. An empirical procedure was designed to examine non-linear relationships and to identify indirect effects by means of a structural equation model. In the estimation, quadratic regression was used to assess non-linear relationships without additionally dividing firms into adoption groups, while SEM was used to test the proposed model, which helped to identify potential pathways and to better assess the effect of fintech use on information asymmetry and on access to bank credit. The analytical procedure for testing the proposed relationships was carried out at the level of small and medium-sized businesses in Uzbekistan, and results estimated by both methods were obtained for the main relationships. Although estimation was performed in both models, the difference in focus between quadratic regression and SEM, namely non-linear relationships and indirect pathways respectively, allowed a broader understanding of the proposed framework. The first approach served to explain variation across levels of digital payment use, whereas the second served to explain relationships formed through information asymmetry. The expected results showed that the use of digital payments may have a non-linear association with access to credit, while the examination of indirect effects indicated that banks can achieve better credit assessment than by relying on traditional financial records alone, which reflects the potential of fintech. The use of digital payment records has potential advantages compared with traditional credit assessment and enables banks to draw on more detailed information in their lending decisions concerning small and medium-sized businesses. The steps implemented in this study are relevant for financial institutions, as they show how digital payment indicators can be selected, evaluated, implemented and monitored in the credit assessment of small and medium-sized businesses.