The Impact Of Digital Financial Inclusion On The Bargaining Power Of Both Parties In The Formal Lending Market

Inclusive Finance is committed to providing affordable financial services to long-tail customers such as farmers,urban low-income earners,small businesses and micro enterprises.As far as credit services are concerned,long-tail customer groups should enjoy more affordable loan interest rates in the context of inclusive finance,but it face difficulties in practice.Due to the low risk resistance ability,little hard information and lack of collateral assets of long-tail customer groups,commercial banks are faced with the problems of high risks,low returns and high costs in the process of providing credit services,thus failing to achieve sustainable operations of inclusive credit business.With the continuous advancement of Internet technology,digital technology has become possible to empower inclusive finance.Digital technology will give full play to the advantages of high speed,low cost,and wide coverage,make up for the shortcomings of inclusive finance,and enable financial institutions and long-tail customer groups to achieve a win-win situation.Based on the above background,this paper focuses on the formal lending market,takes the impact of digital financial inclusion on the bargaining power of banks and households as the research object,and focuses on how to measure the bargaining power of banks and households.The impact of digital financial inclusion on the bargaining power of both parties and the mechanism of action,and policy advice are given.First,it theoretically analyzes the bargaining behavior of both lenders and borrowers in the formal lending market in the process of lending interest rate determination.The party with strong bargaining power will promote the pricing of lending rates in its favor.A theoretical model of bargaining is established.Secondly,the residual value of the proxy variable of the bank’s bargaining power and the household’s bargaining power is empirically measured using the bilateral stochastic boundary method.Finally,the proxy variables of the bargaining power of banks and households in the formal lending market from 2011 to 2017 are matched with the digital financial inclusion index from 2011 to 2017 to empirically analyze the impact of digital financial inclusion on the bargaining power of borrowers and lenders.The main conclusions of this study are as follows:(1)In the bargaining process,the bargaining power of banks is stronger than that of households.The variance decomposition of the bargaining power effect model shows that there is an unexplainable part of the influencing factors in the determination of the lending rate,and the bargaining power factor accounts for 65.56% of them.In the total influence of the bargaining power factor on the decision of the lending rate,the influence of the bank’s bargaining power is as high as 97.50%,and the influence of the household’s bargaining power is only 2.50%.(2)Banks with stronger bargaining power push borrowing rates to price in their favor,and households with weaker bargaining power bear more of the cost of borrowing.The residual estimation of the bargaining power effect model shows that,on average,the bank makes the actual lending rate 71.10% higher than the theoretical lending rate during the bargaining process,and households can only make the actual lending rate 28.54% lower than the theoretical lending rate during the bargaining process.The net effect of bargaining is that the actual lending rate is 42.55% higher than the theoretical lending rate.(3)The development of digital financial inclusion will reduce the bargaining power of banks,but the relationship with the bargaining power of households is not significant,which in turn reduces the difference in bargaining power between banks and households.The two sides are more evenly matched in the bargaining process,and households also benefit from lower borrowing costs.(4)The Internet loan format derived from the background of digital inclusive finance has an alternative and competitive effect on traditional bank credit business,thereby reducing the bargaining power of banks.Using the credit index,a secondary dimensional indicator of the Peking University Digital Financial Inclusion Index,as a proxy indicator to measure the development of the Internet loan business,empirical tests found that the credit index was significantly negatively correlated with bank surplus at the level of 5%.The possible innovation of this paper is that:(1)Based on the innovative idea of game theory,this paper incorporates negotiation factors into the process of loan interest rate determination.Borrowers and lenders will bargain in the process of loan interest rate determination.The effect of bargaining depends on the bargaining power of both parties,so the net effect of bargaining power will affect the pricing of loan interest rates.(2)This paper innovatively establishes the theoretical model of bargaining in the formal lending market,uses the bilateral stochastic boundary method to estimate the surplus obtained by the borrowers and lenders in the process of bargaining,and then uses the residual value as a proxy variable to measure the bargaining power.Further discussion on the impact of digital financial inclusion on the bargaining power of borrowers and lenders.