Does the development of FinTech increase the risk of private lending ? Evidence from China

Huixiao Guo, Ruohan Wang and Xinya Wang

International Review of Economics & Finance, 2024, vol. 96, issue PC

Abstract: The absence of formal regulation poses private lending a significant risk source for China's financial system. By analyzing over four million court dispute documents from 2011 to 2020 across 288 prefecture-level cities, we construct a private lending risk index to investigate the correlation between FinTech development and private lending risk. Our findings indicate that the development of FinTech leads to a significant increase of the private lending risk, with digitization level exerting the most significant promoting effect on lending risk. The micro-level analysis reveals that FinTech development attracts customers of higher quality through competitive effects, thereby lowering the threshold for participation in private lending groups and consequently amplifying lending risks. These findings remain robust to a series of tests, including various specifications and instrumental variable approaches. Moreover, the positive relationship between FinTech and private lending risks is more pronounced in contexts characterized by weaker financial supervision, limited supply of formal finance, and lower economic development.

Keywords: Private lending; FinTech; Risk; Financial regulation (search for similar items in EconPapers)
JEL-codes: G20 O17 O33 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:96:y:2024:i:pc:s1059056024007135

DOI: 10.1016/j.iref.2024.103721

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