Can Fintech Alleviate the “Triangular Dilemma” of Rural Credit Services？ Insights from the Perspective of Cooperation Between Rural Financial Institutions and Fintech Companies
WANG Xiuhua, LIU Jinhua
College of Finance and Statistics, Hunan University
Summary:
Difficult and expensive financing in the field of agriculture, rural areas, and farmers is a longstanding issue. It stems from the inability of the traditional credit model to break through the “triangular dilemma” of rural credit services; that is, traditional financial institutions cannot simultaneously achieve their three goals related to risk (controllability), cost (sustainability), and scale (growth) when offering rural credit services. In the context of accelerating the most recent round of scientific and technological revolution and industrial transformation, the broad application of the new generation of information technology (represented by big data, cloud computing, and artificial intelligence) in the financial field is promoting profound changes in financial formats, financial products, and financial development models, as well as constantly improving the quality and efficiency of financial services. Therefore, fintech is regarded as an important and feasible means of alleviating the abovementioned triangular dilemma. At present, in the face of external challenges brought by “the sinking of large banks' business and cross-border competition of fintech companies” and the internal pressure caused by “narrowing interest margins,” rural financial institutions have taken digital transformation to an unprecedented strategic height. However, this situation differs from that of large banks that establish fintech subsidiaries with great financial strength, solid customer bases, and strong research and development capabilities. Multiple constraints (e.g., the lack of fintech talent, limited financial strength, and complex management systems) make it difficult for rural financial institutions to independently establish fintech subsidiaries or invest large amounts of money into the development and application of fintech, resulting in widespread “digital transformation anxiety.” In this context, a large number of rural financial institutions have signed strategic cooperation agreements with fintech companies, aiming to innovate their business models, optimize their service processes, and improve their risk management through cross-border cooperation, with the goals of promoting their digital transformation and effectively alleviating the difficulty and high costs of financing. Has the cooperation between rural financial institutions and fintech companies achieved the expected results？ Can such cooperation shape their competitive advantage related to inclusive finance, break through the bottleneck of rural financial development, and ultimately solve the triangular dilemma problem？ This paper takes rural financial institutions' signing of strategic cooperation agreements with fintech companies as a quasi-natural experiment. Based on the annual data of 641 rural financial institutions in China, this paper uses a multi-period difference-in-differences (DID) model to investigate the impact of fintech on the credit scale, credit risk, and operating costs of rural financial institutions. It finds that fintech can expand the credit scale of rural financial institutions and reduce their credit risk without increasing their operating costs. This means that fintech can indeed alleviate the triangular dilemma of rural credit services. The mechanism analysis shows that the alleviation of information asymmetry is an important factor in fintech's ability to improve the credit scale and quality of rural financial institutions. Further analysis shows that fintech can expand the retail loan scale of rural financial institutions and improve their operating performance; improving net interest income is important for the improvement of rural financial institutions' operating performance. This paper makes three contributions. First, in terms of research, it extends the literature on the impact of fintech on the operations of traditional financial institutions, providing micro-empirical evidence of fintech's ability to alleviate the triangular dilemma of rural credit services. Second, in terms of methods and samples, this paper focuses on the impact of fintech on the operations of rural financial institutions by constructing virtual variables of fintech cooperation and using a multi-period DID model. This not only effectively avoids endogeneity problems but also facilitates the accurate evaluation of the actual effect of cooperation between rural financial institutions and fintech companies. Third, in terms of the research content, this paper enriches the literature on the triangular dilemma in the field of rural finance and provides practical support for rural financial institutions' use of fintech to enhance financial inclusion in the future.
王修华, 刘锦华. 金融科技能否缓解农村信贷服务的“三角困境”？——基于农村金融机构与金融科技公司合作的视角[J]. 金融研究, 2023, 522(12): 150-168.
WANG Xiuhua, LIU Jinhua. Can Fintech Alleviate the “Triangular Dilemma” of Rural Credit Services？ Insights from the Perspective of Cooperation Between Rural Financial Institutions and Fintech Companies. Journal of Financial Research, 2023, 522(12): 150-168.
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