Access to Digital Credit and Its Spillover Effects in China
A group walking in rural China, where interviews took place for this project | Photo Credit: Zenan Wang
Context
In 2016, several Internet companies in China announced their intentions to offer digital credit in rural areas. Digital credit has the potential to decrease operational costs and Chinese companies promised an annual interest rate of around 9%, significantly lower than the Asian median (21%). However, because digital credit is a relatively recent invention, there is very limited research evaluating its impacts on consumers.
Study Design
This pilot study in rural China involved qualitative surveys and interviews with households and village leaders to assess the usefulness of a husbandry loan product. It identified features of the loan that were both attractive (e.g. ease of withdrawal and low interest rate) and unsatisfying (e.g. unfamiliar online application processes and conservative loan size) to borrowers. The study was motivated by a desire to help digital credit providers and commercial banks improve their product designs and policies–and ultimately the household welfare–by better understanding the user experience and perceived benefits to borrowers. (Note: This study was originally intended to rigorously evaluate the impacts of a digital credit product on credit-constrained households in rural China, but re-designed due to indefinite product suspension).
Results and Policy Lessons
The interviews revealed a few key features that related to the loans accessibility and usefulness. Consumers expressed satisfaction with the ease of withdrawing funds, and interest rates for the product were lower than similar loans available at the local commercial bank. However, the online application was difficult to complete, and users found the loans they received were much smaller than requested, limiting usefulness. For a more in-depth results discussion, please see the Results Brief.
