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| Are Digital Finance Really Inclusive？ |
| XU Lihe, ZHOU Li, ZHANG Xun
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Institute of Studies for the Greater Bay Area/School of Finance, Guangdong University of Foreign Studies;
School of Statistics, Beijing Normal University |
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Abstract The Central Financial Work Conference in 2023 emphasized advancing five key areas: technology finance, green finance, inclusive finance, pension finance, and digital finance. Among these, inclusive finance serves as a critical tool for achieving common prosperity. Proposed by the United Nations in 2005, Inclusive Finance aims to ensure equitable access to financial services for all. With the rapid advancement of digital technology, digital finance has emerged as a pivotal driver in promoting inclusive finance. China is likely to be the leader of the inclusive finance practices.
However, the “Digital Divide” remains a pressing challenge. Based on financial exclusion or credit constraint hypotheses, even if digital technology mitigates collateral deficiencies, resource-constrained low-income households may still face constraint. From a “coverage” perspective, data from the 2019 China Household Finance Survey (CHFS) reveals that only 58.3% of households held third-party digital payment accounts (including internet/mobile payments), rising to 69.5% by 2021. Yet, 40.3% of these accounts had zero balances in 2021, increasing to 43% in 2023. Only 1.1% of households utilized internet loans in 2021, with marginal growth by 2023. The Enterprise Survey for Innovation and Entrepreneurship in China (ESIEC) indicates that 28% of SMEs did not adopt digital payments for procurement, 35% for sales, and less than 6% for payroll, while digital financial borrowing remained limited to 10% in year 2021. Furthermore, the Peking University Digital Finance Inclusive Finance Index shows rapid growth until 2020, followed by a decline to pre-2019 levels post-2021. On the “quality” front, digital inclusive finance faces issues like fraud, asymmetric information, and regulatory gaps. Vulnerable groups lacking digital literacy or computational skills risk insufficient benefits and marginalization despite internet access. Thus, critical questions persist: At what stage is China's digital finance inclusivity？ What barriers hinder its advancement？ This study addresses these gaps through empirical analysis.
Using the micro-data from China Household Finance Survey (CHFS 2017-2019), this paper firstly explores digital financial market participation from the perspective of household wealth disparity, providing new evidence for the development of digital finance participation. Results show that lower-wealth households are significantly less likely to enter digital finance markets (online shopping payments, digital investment and credit) than higher-wealth household. The reason is that for low-wealth families, the entry threshold and financial constraints to enter the digital financial market are significantly higher, including digital financial knowledge threshold, equipment threshold, data flow investment and financial constraints. In addition, the evidence of this paper is more inclined to demonstrate that low-wealth families are mainly self-restraint when entering the digital financial market. On the other hand, wealthy families pay more attention to the factors on the digital supply side. The results are still robust after using instrumental variable method, panel fixed effect and multiple threshold standards. The conclusions show that digital finance still cannot completely go beyond the nature of finance and reach all low-wealth families.
The objective of this paper is not only to examine the impact of household wealth disparities on the constraints of digital finance, but more critically, to uncover the underlying drivers of the barriers hindering the development of digital inclusive finance. By analyzing from the dual dimensions of service breadth and depth, it aims to explore China's practical experience in addressing the challenges of inclusive finance development. This study seeks to provide micro-level household empirical evidence for a more prudent and precise understanding of the concept of digital inclusive finance.
This research yields two key policy implications. First, by advancing technological innovation, upgrading infrastructure, and promoting digital literacy, we can further enhance the accessibility and affordability of digital finance, thereby expanding the breadth of financial inclusion services. Second, regulatory priorities for the digital finance market should focus on regulating market activities, strengthening data security, and other related areas to ensure that suppliers in the digital finance market operate in a healthy, orderly, and standardized manner. By ensuring compliance in the operations of digital finance suppliers, improving the service quality of digital financial products, deepening the depth of inclusive financial services, and encouraging broader participation from wealthier households in the digital finance market, we can ultimately promote the development of inclusive finance.
This paper may engage with and contribute to the literature of following fields.
Theoretically, our results show that the financial constraints hypothesis exists in the digital finance market. This paper compares the differences in household wealth distribution between participants and non-participants of digital finance, examines the exclusionary characteristics of digital finance, verifies whether digital finance has achieved full inclusivity, and explores the underlying drivers of barriers preventing households across different wealth strata from participating in digital finance markets.
Empirically, by differentiating the impacts of digital payment, digital investment, and digital credit on households and employing the instrumental variable approach, it accurately establish the causal relationship between household wealth and digital finance, as well as analyze the underlying mechanisms.
Moreover, the paper attempts to disentangle the digital finance constraints faced by households from both demand-side and supply-side.Specifically, the demand-side factors include digital knowledge or market access thresholds and funding constraints, and supply-side factors include data security, and attributes of digital financial products. This not only serves as an important supplement to existing literature on financial constraints but also holds practical significance, providing reference for policy making by relevant authorities.
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Received: 21 August 2023
Published: 02 December 2025
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