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

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