The Impact Of Digital Finance On Household Formal Credit Constraints

In recent years,with the rapid development of China’s economy,the desire of families to improve consumption level,carry out entrepreneurial activities and expand production scale is growing.However,due to the impact of liquidity constraints,many families’ consumption and investment needs can not be met.Theoretically speaking,household financing plays an important role in providing current liquidity,realizing inter temporal allocation of resources,and supporting families to expand production.The rational use of credit can effectively smooth household consumption and income,which is conducive to maintaining the stability of household economic situation and promoting the growth of household income.At present,due to the remote location,difficult to meet the credit threshold conditions and insufficient mortgage guarantee,some families in China are subject to credit rationing by formal financial institutions,which makes it difficult to meet the credit demand of smooth consumption and expanding production.At the same time,some families will restrain their credit demand because of the high transaction cost of credit or the risk of losing collateral due to the fear of being unable to repay the loan,which is also an important reason for families to face formal credit constraints.In order to ease the constraints of household credit,China has vigorously developed Inclusive Finance in recent years to improve the inclusiveness and sustainability of financial services.However,the traditional financial supply mode based on increasing physical outlets is difficult to break the constraints of space and geographical distance,and there is always the problem of high operating costs,which is difficult to fundamentally solve the problem of household credit constraints.In recent years,digital finance has developed rapidly in the world,and China has become one of the countries with the fastest development of digital finance.Compared with traditional finance,digital finance has the characteristics of wide coverage,low operating cost,fast decision-making speed,and using big data technology to improve risk control ability.It can make up for the lack of traditional financial services to a large extent,and provides a revolutionary path to ease the constraints of household formal credit.Based on the data of China Household Finance Survey(CHFS)in 2017,this paper empirically tests the impact of household level digital finance use on household formal credit constraints.This paper mainly includes the following four aspects:firstly,it summarizes and combs the relevant literature of digital finance and credit constraints at home and abroad,analyzes the characteristics of digital finance and the causes of credit constraints.Secondly,from the theoretical level,this paper analyzes the impact and mechanism of digital Finance on household formal credit constraints.This study believes that digital finance can alleviate the level of household formal credit constraints through three mechanisms: improving the credit supply of financial institutions to families,reducing the transaction cost of lending,and reducing the risk cost of lending.Thirdly,based on the CHFS data in 2017,this paper uses Probit model to empirically test the impact of digital finance on household formal credit constraints,and on this basis to explore the impact and mechanism of digital finance on different types of credit constraints.Furthermore,this paper explores the different effects of different levels of financial knowledge on households’ use of digital finance to ease credit constraints.Finally,it is the conclusion of this paper and puts forward relevant policy recommendations based on the research conclusions.The main conclusion of this study is that digital finance can significantly reduce the probability that households are subject to formal credit constraints,and can significantly alleviate the supply-oriented credit constraints and demand-oriented credit constraints.In order to alleviate the demand-oriented credit constraints,digital finance can reduce the cost of applying for credit and the demand-oriented credit constraints caused by high transaction costs by increasing the family’s awareness of financial products,simplifying the credit service process,and reducing the requirements of mortgage guarantee.In addition,digital finance can reduce the risk of loss of collateral due to the family can not afford the loan,and reduce the cognitive bias of the family to restrain their own loan demand,so as to ease the household demand-oriented credit constraints.Furthermore,we find that households with higher level of financial knowledge use digital financial products to alleviate household credit constraints better than households with lower level of financial knowledge,which indicates that higher level of financial knowledge is helpful for households to better use digital finance to alleviate formal credit constraints.Finally,this paper puts forward the following policy recommendations.At the supply level,financial institutions should continue to base on the development of science and technology,further optimize financial products and services,and enhance the breadth and depth of household credit supply.In the aspect of demand,families should improve their financial knowledge,and cultivate the correct concept of borrowing and lending,so as to help them express and release their credit demand better.From the government level,we should improve the infrastructure for the development of digital finance and increase the support for digital finance.