Traditional Financial Basis，Knowledge Threshold and Digital Finance for Farmers

Abstract

This study examines the current relationship between digital finance and traditional finance by using micro survey data. Because of various reasons, there are many blank areas and groups in traditional financial services, especially in remote rural areas. Therefore, the emergent digital finance is expected to fill the blank, and serve the areas and groups that traditional finance has yet served. Meanwhile, expanding business in rural areas has indeed become an important strategy for some Internet finance companies. However, we must clearly realize that the application of new digital financial technology, which is a combination of Internet technology and financial business, needs basic financial knowledge and Internet skills. Without basic financial knowledge and Internet skills, people may not be able to use digital financial services skillfully and effectively. Therefore, although Internet finance could overcome geographical obstacles and cut the cost in remote rural areas with low population density and economic activity density, for the perspective of the demand side, it is not so easy to enjoy these modern digital financial services. Therefore, examining the relationship between traditional financial basis and farmers’ use of digital finance through scientific empirical analysis will contribute to deepen our understanding of the digital financial pattern. In this study, we use the firsthand micro survey data from the Thousand Village Survey of Shanghai University of Finance and Economics to investigate the influence of traditional financial foundation and family members’ education level on the use of digital finance. Using the special survey data of Rural Inclusive Finance will help us to inspect the value of traditional financial basis in influencing rural households to use new digital financial services. We find that the higher the frequency of using traditional finance, the greater the possibility of using digital financial services; and the higher the education level of farmers’ household, the higher the probability of using digital finance. In order to overcome the endogenous problems, we take the time required for family to reach the bank outlet” and how many ATMs in the village” as instrumental variables for the family to use traditional financial services, and carry out two-stage least square regression. In addition, in order to more intuitively examine the relationship among traditional finance, family education level and digital finance, we also make a brief analysis of the reasons why farmers do not use digital finance and the willingness of households who do not use Internet finance at present, which also confirm that the lack of financial basis and education is the strongest marginal obstacle affecting the spread of Internet finance. Digital finance also relies on the mass basis laid down by traditional finance. This study is a supplement to the existing literature, because when discussing the relationship between Internet finance and traditional finance, the existing literature can only start from the macro and policy perspective, lacking the micro basis. From the perspective of policy reference value, it is also of great practical significance for us to understand the practical value of the new digital finance and formulate the rural financial policy of digital finance going into the countryside.