Financial system

Engineering

Financial services

Financial market

Trap (plumbing)

Economics

Business

Environmental engineering

Monetary economics

Sociology

Debt

Consumption (sociology)

Finance

Financial inclusion

Social science

Finance research letters

This study focuses on the impact of digital finance on households. While digital finance has brought financial inclusion, it has also increased the risk of households falling into a debt trap. We provide evidence that supports this notion and explain the channel through which digital finance increases the likelihood of financial distress. Our results show that the widespread use of digital finance increases credit market participation. The broadened access to credit markets increases household consumption by changing the marginal propensity to consume. However, the easier access to credit markets also increases the risk of households falling into a debt trap.

The rise of digital finance: Financial inclusion or debt trap?