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The rise of digital finance: Financial inclusion or debt trap?

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Listed:
  • Yue, Pengpeng
  • Korkmaz, Aslihan Gizem
  • Yin, Zhichao
  • Zhou, Haigang

Abstract

This study focuses on the impact of digital finance on households. While digital finance has brought financial inclusion, it has also increased the risk of households falling into a debt trap. We provide evidence that supports this notion and explain the channel through which digital finance increases the likelihood of financial distress. Our results show that the widespread use of digital finance increases credit market participation. The broadened access to credit markets increases household consumption by changing the marginal propensity to consume. However, the easier access to credit markets also increases the risk of households falling into a debt trap.

Suggested Citation

  • Yue, Pengpeng & Korkmaz, Aslihan Gizem & Yin, Zhichao & Zhou, Haigang, 2022. "The rise of digital finance: Financial inclusion or debt trap?," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005432
    DOI: 10.1016/j.frl.2021.102604
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    More about this item

    Keywords

    Fintech; Digital lending; Financial inclusion; Digital financial literacy; Debt trap;
    All these keywords.

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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