Inclusive Financial Development and Multidimensional Poverty Reduction: An Empirical Assessment from Rural China

Abstract

Inclusive finance is often considered to be a critical element that makes growth inclusive, as access to finance can enable the poor to lift themselves from income poverty. However, can it play such a role when the poor are in multidimensional poverty? Why does financial exclusion and poverty still exist in countries with vigorous development of inclusive finance? We build an evolutionary game model to analyze the equilibrium strategies of inclusive financial institutions and the poor in poverty reduction activities to find the answers. As there is a high incidence of poverty and serious financial exclusion in rural areas of China, we test the poverty reduction effectiveness of inclusive financial development on the poor with different labor capacity in rural China from 2010 to 2016 based on survey data of China Family Panel Studies and relevant statistics collected from 21 provinces. Our study finds there are differences in poverty alleviation effects of inclusive financial development among the poor with different labor capacities; if financial institutions target the service precisely to the working-age population in rural areas, they will achieve the dual goals of maintaining institutional sustainable development and alleviating poverty; And the development of inclusive finance in aspects of permeability, usability, and utility can significantly reduce multidimensional poverty. Therefore, to further improve the multidimensional poverty reduction performance and stimulate the endogenous motivation of the poor, it is necessary to strengthen the support for financial resources served to the working-age population, and to improve the development of rural inclusive finance in aspects of quality and affordability.