Emerging Markets Finance and Trade

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The Impact of Mobile Finance Use on Livelihoods

of Farmers in Rural China

Jing Wang, Xiaohua Yu, Kaiyu Lyu & Jan-Henning Feil

To cite this article: Jing Wang, Xiaohua Yu, Kaiyu Lyu & Jan-Henning Feil (2022) The Impact of
Mobile Finance Use on Livelihoods of Farmers in Rural China, Emerging Markets Finance and
Trade, 58:10, 2867-2879, DOI: 10.1080/1540496X.2021.2013195

To link to this article: https://doi.org/10.1080/1540496X.2021.2013195

Published online: 28 Dec 2021.

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EMERGING MARKETS FINANCE AND TRADE
2022, VOL. 58, NO. 10, 2867–2879
https://doi.org/10.1080/1540496X.2021.2013195

The Impact of Mobile Finance Use on Livelihoods of Farmers in

Rural China
Jing Wanga, Xiaohua Yu b
, Kaiyu Lyua, and Jan-Henning Feil c

a
Chinese Academy of Agricultural Sciences, Institute of Agricultural Economics and Development, Beijing, China;
b
Department of Agricultural Economics and Rural Development, Georg-August-Universität Göttingen, Göttingen,
Germany; cDepartment of Agriculture, South Westphalia University of Applied Sciences, Soest, Germany

ABSTRACT KEYWORDS
Mobile finance plays an important role in supporting productive activities and Mobile finance; financial
improving the basic livelihoods of rural households. Using three-round panel inclusion; household
data and employing control function approach to address the self-selection livelihood; China
bias issue, this study shows that mobile finance use significantly increases
farmers’ livelihoods, measured by farm income and per capita consumption
in China, with a larger marginal effect for smallholders and credit-constrained
farmers. We further divide mobile finance into two types and reveal that the
mobile payment use plays a larger role in farm income, while the mobile
banking use has a larger impact on household consumption.

1. Introduction
As the world’s largest developing country, China’s success in poverty reduction has attracted world­
wide attention. Between 2012 and 2020, China has lifted 98.99 million poor people in rural areas out of
extreme poverty, contributing significantly to global poverty reduction. Poverty alleviation cannot be
achieved without effective financial support that plays an important role in supporting productive
activities and improving the basic living standards of the poor.
However, financial inclusion that meets the needs of vulnerable groups is often associated with
“high risk exposure, high fixed cost of expansion and low investment returns.” The development of
financial inclusion is accompanied by the conflict of affordable cost and the principle of commercial
sustainability. As a result, traditional financial institutions are reluctant to provide financial services
for households in rural areas.
With the rapid development of digital technologies, mobile finance is expected to solve the
problem of financial exclusion for the poor and improve their socioeconomic situation. Mobile
finance includes mobile payment, online loans, online investment and other kinds of innovative
products. On one hand, it could overcome the limitations of traditional financial services in
terms of space and time, improve the quality and variety of financial services (Beck et al. 2018;
Manacorda and Tesei 2020; Maurer 2012; Mbiti and Weil 2013). Farmers in remote areas that
were previously excluded by traditional financial institutions can now access financial services at
a lower interest rate or lower transaction costs with the use of mobile finance (Mbiti and Weil
2013). On the other hand, by establishing big data-based risk evaluation models, mobile finance
providers could effectively reduce the degree of information asymmetry when providing financial
services (Costello 2019). Therefore, the use of mobile finance may effectively fill financial gaps in
rural areas.

CONTACT Jan-Henning Feil feil.jan-henning@fh-swf.de Department of Agriculture, South Westphalia University of Applied
Sciences, Lübecker Ring 2, Room 01.207, Soest, D-59494, Germany
© 2021 Taylor & Francis Group, LLC
2868 J. WANG ET AL.

Existing studies stress the potential of mobile payment use to improve household income, smooth
consumption and change risk sharing arrangements (Jack and Suri 2014; Kikulwe, Fischer, and Qaim
2014; Kingiri and Fu 2019; Munyegera and Matsumoto 2016; Sekabira and Qaim 2017). Morawczynski
(2009) found that mobile finance could help facilitate spillover of technology and adoption of
technologies. A study on Kenya by Wandibba, Nangendo, and Mulemi (2014) showed that mobile
finance could help empower the women without assets by enabling them to easily receive credit and
pay off loans. However, previous studies have the following limitations. First, most of the research
samples in the existing literature are relatively small and restricted to just few African countries like
Uganda and Kenya, and there is no further empirical evidence from other developing countries.
Second, little research has examined the impacts of mobile finance use on heterogeneous farmers. It is
important to investigate whether mobile finance can serve as an effective complement of traditional
finance and alleviate financial exclusion faced by farmers, thus improving their welfare. Third,
previous research focused on the impact of mobile payments, while other mobile finance instruments
received almost no attention.
This paper contributes to the growing research in several ways. First, it examined farmers’
livelihoods from the perspective of mobile finance based on a nationwide Chinese household survey.
This has enriched literature on mobile finance and enhanced understandings of the role of financial
resources in livelihood improvement and poverty alleviation. Second, this paper made an important
supplement to existing studies by evaluating differential effects of mobile finance use on improving
financial inclusion for vulnerable groups. It contributes to current efforts to shed light on the question
whether the vulnerable people can benefit from mobile finance use. Third, the paper not only
considered the effects of mobile payment on household livelihoods, but also focused on the effects
of other mobile finance services, such as online loans and online wealth management. It provides
a comprehensive perspective to analyze the role of mobile finance in reducing financial exclusion and
improving household welfare.
We analyze the impact of mobile finance on household livelihoods by using three-round panel
data of 2,935 farmers observed over 5 years and adopting control function approach to address the
self-selection-based endogeneity issue. The results show that mobile finance use significantly
increases farmers’ livelihoods, measured by farm income and consumption. This effect is particu­
larly emphasized for farmers subject to credit constraint and with small farmlands. The results of
a further analysis on different types of mobile finance suggest that mobile payment plays a larger
role in increasing farm income, while mobile banking services have a larger impact on household
consumptions.
The remainder of the paper is set out as follows. Section 2 reviews related literature and proposes
main hypotheses. Section 3 introduces data sources and related descriptive statistics. Section 4 presents
the empirical model. Section 5 presents regression results. Section 6 concludes.

2. Related Literature and Hypotheses

In the section, we briefly introduce the mobile finance development in China, provide an overview of
existing literature and, accordingly, discuss the mechanisms whereby mobile finance affects farmers’
livelihoods. Based on these backgrounds, we derive hypotheses.
China’s rural finance market is mainly serviced by the rural credit cooperative system. This
system has the widest networks and outreaches in rural China and provides financial services to
local farmers, but most rural banks are county-level legal entities, which limits business diversifica­
tion (Shen et al. 2010). With the spread of the Internet and outstanding development of the
smartphone market in China over the past decade, Internet finance institutions have grown and
diversified at a dizzying rate. These emerging institutions use digital technology to transform the
way of providing financial services in rural areas (Chen et al. 2020). Given that digital technology
has played an exceptional role in financial inclusion, traditional financial institutions are also
integrating mobile Internet, big data, and other technologies with financial services such as payment,
 EMERGING MARKETS FINANCE AND TRADE 2869

savings and loans. By the end of 2018, the number of households that opened online banking and
mobile banking in rural areas reached 612 million and 670 million, respectively, approximately 65%
of rural households. Transactions through non-banking mobile payment services are around 6.77
trillion U.S. dollars in rural areas.
Most of the existing literature has focused on the development of mobile finance in Africa, such
as M-Pesa project, where the impact of the development of mobile payments is analyzed from the
perspective of family welfare and risk management (Kikulwe, Fischer, and Qaim 2014; Mbiti and
Weil 2013; Riley 2018; Suri and Jack 2016). The literature that focuses on China’s mobile finance has
largely concentrated on the impact of regional mobile finance development on households’ financial
needs and consumer spending (Li, Wu, and Xiao 2020; Wang and Guo 2019; Yi and Zhou 2018).
These studies tended to focus on mobile finance from a macro perspective and lacked a micro-
foundation.
Some studies have analyzed the role of mobile finance use on household livelihoods and
explained possible mechanisms. The first explanation assumes that mobile finance lowers the
threshold of financial services and helps farmers to access timely and low-cost financing.
Research by Emekter et al. (2015) indicated that online credit platforms can provide loans for
someone without credit history and collateral by taking information from social-media and
e-commerce records. This can help smooth credit constraints by financing those people who
previously had little access to credit. The second possible mechanism is that mobile finance
enables farmers to save and remit money easily, therefore promoting the accumulation of house­
hold wealth and improving liquidity (Jack and Suri 2014; Munyegera and Matsumoto 2016; Riley
2018). The third explanation assumes that mobile finance allows households to establish flexible
transactions and enhances transaction convenience. Empirical research found that mobile payment
has facilitated farmers to transact with non-local buyers by allowing them to reduce transaction
costs and enjoy the best price (Morawczynski 2009; Mueller 2001; Sekabira and Qaim 2017).
Moreover, the synergy between mobile payment and e-commerce encourages farmers to promote
interregional transactions, which enables them to purchase inputs and sell outputs at better market
prices and increase their agricultural income (Kirui et al. 2013). The fourth channel could be that
mobile finance could help farmers adopt new technologies and improve productivity (Kingiri and
Fu 2019). The most recent paper by Batista and Vicente (2020) has shown that mobile money can
be used as a platform to incentivize adoption of modern agricultural technologies. It can play
a critical role in financing productive activities and stimulate farmers’ use of farm inputs such as
chemical fertilizer and herbicides (Abdul-Rahaman and Abdulai 2021). In addition, there are some
other indirect channels such as women empowerment and labor market participation. Mobile
money transfer services can bestow financial independence on women by increasing their bargain­
ing power within households, which provides them with opportunities to enter the labor force and
make decisions in farm production (Field et al. 2021; Suri and Jack 2016; Wandibba, Nangendo,
and Mulemi 2014). Based on these arguments, we are going to test the Hypothesis 1:

Hypothesis 1: Mobile finance use has a significant positive impact on farmers’ livelihood.

In terms of improving the livelihood of farmers, mobile finance has heterogeneous impacts on
different population groups. Financial inclusion is the key argument why we expect mobile finance to
improve household livelihood. Agriculture in China is characterized as small-scale farming.
Considering that the low level of return on farm investment and lack of collateral make it difficult
for smallholder farmers to access to traditional financial services, they are expected to rely more
heavily on the innovations like mobile finance. In addition, given that credit constraint is a major type
of financial exclusion, mobile finance provides a new financing channel for credit constrained farmers
and helps them meet capital demand. Existing studies have suggested that mobile finance can widely
integrate the fragmented information of households by using big data, which could then be used to
construct the risk evaluation models and effectively reduce the high default risk caused by information
2870 J. WANG ET AL.

asymmetry when providing credit services (Li, Wu, and Xiao 2020; Liu, Pan, and Yin 2020). These
farmers who were previously rejected by traditional financial institutions are expected to obtain loans
to meet their financial needs. Based on these arguments, we propose the Hypothesis 2:

Hypothesis 2: Mobile finance has heterogenous impacts, with a stronger marginal impact on the
livelihood of smallholder farmers and credit constrained farmers.

3. Data and Methods

3.1. Data and Variables
Our data are obtained from the China Household Finance Survey (CHFS), a nationally and provin­
cially representative dataset launched for the first wave in 2011. This is the only nationally represen­
tative survey so far on household finance in China, which covers household demographics, income,
assets, and use of financial services. Because the 2011 questionnaire did not include questions related
to the use of mobile finance and the data for the year of 2019 have not been made publicly available,
our research uses data from the second, third and fourth round of the survey, that is, in 2013, 2015, and
2017. Based on the research objective, we only focus on households who are less than 65 years old and
engage in agricultural activities during three rounds. Also, the head of household should also be the
household financial decision-maker to ensure individual own characteristics can represent household
characteristics. As a result, a balanced panel data with 2935 households are left (8805 household-year
observations).
Regarding the use of mobile finance, CHFS asked questions to collect information on household
use of mobile payments, online wealth management, and online loans (Detailed information on survey
questions is provided in Appendix Table A1). Based on those questions, we can identify whether
households use mobile finance, and which types of mobile finance service are used by households.
Mobile payment is the most fundamental business model of mobile finance, and it covers various daily
transaction scenarios. All the other services, such as online loans and online wealth management, are
carried out on the basis of mobile payment function, and we collectively refer to them as mobile
banking services.
It can be seen from Figure 1 that the proportion of farmers using mobile financial services during
the sample period showed a rapidly growing trend. In 2013, only 6% of farmers used mobile financial
services. By 2017, the proportion of households using mobile finance has increased to approximately

MFS users
50% Only Mobile payment users
45% Mobile banking users
40%
35% 31.58%
28.79%
30%
25%
20%
13.22% 11.89%
15%
10% 6.27% 6.10%
5% 0.17% 1.33% 2.79%
0%
2013 2015 2017

Figure 1. The type of digital finiancial service.

 EMERGING MARKETS FINANCE AND TRADE 2871

32%. Among them, about 90% of users only used mobile payment services. Although the proportion of
users who use online wealth management or online loans has increased, it is still at a low level. By 2017,
the proportion of rural households using mobile banking was only 2.79%.
Following previous studies (Nielsen et al. 2013), we use farm income and per capita consumption
expenditures as a proxy to evaluate livelihood. Among them, the CHFS questionnaire explicitly asked
about the farm income status of households engaged in agricultural production. In terms of con­
sumption expenditure, CHFS data inquired households’ food expenditure, daily necessities expendi­
ture, transportation and communication expenditure, education expenditure, cultural and
entertainment expenditure, as well as durable goods expenditure in detail. We obtain the per capita
household consumption expenditure by dividing the sum of the above categories by the household
size.
Since existing literature has listed multiple factors that affect household livelihoods (Liu and Liu
2016; Mabe et al. 2019; Munyegera and Matsumoto 2016), we also control variables such as household
economic characteristics and demographic characteristics. Household economic characteristics
mainly include four variables: the size of agricultural land, the present value of agricultural machinery
holdings, the total value of non-agricultural assets, and existing credit constraint conditions of
households. The credit constraint in our text is considered as quantity rationing, where loan applicants
are fully or partially rejected by financial institutions (Kumar, Turvey, and Kropp 2013; Stiglitz and
Weiss 1981). The demographic characteristics of households include five variables, such as the
household size, the proportion of household members engaged in farming, the age of household
head, the education level of household head, and smartphone-use conditions.
Table 1 presents descriptive statistics of household characteristics grouped by the survey time and
the use of mobile finance. The table shows that mobile finance users and nonusers differ across the
demographic and socioeconomic characteristics. Compared with nonusers, mobile finance users are
more likely to have a larger family and less agricultural labor forces. The mean farm machinery and

Table 1. Household summary statistics by users and nonusers of mobile finance.

2013 2015 2017

Users Nonusers Users Nonusers Users Nonusers

N = 184 N = 2751 N = 388 N = 2547 N = 927 N = 2008
Dependent variables
Farm income (CNY) 26308*** 16024 24288*** 15559 22107*** 13001
(33592) (22369) (35707) (25327) (32788) (21336)
Per capita consumption (CNY) 7379*** 4810 7614*** 5255 7291*** 5235
(3879) (3438) (4255) (3691) (4334) (3761)
Control variables
Farm size (Mu) 15.672 28.460 18.639 16.363 20.217*** 15.071
(30.05) (858.07) (35.68) (37.59) (54.63) (25.51)
Farm machinery (CNY) 10814* 5333 14221** 7919 12917*** 6923
(43647) (43894) (54309) (46276) (38852) (22355)
Assets (CNY) 418586*** 241679 461678*** 241263 422047*** 234515
(383426) (301169) (475201) (293868) (451011) (329732)
1 if credit constrained 0.038 0.053 0.181 0.156 0.178 0.171
(0.19) (0.22) (0.39) (0.36) (0.38) (0.38)
Household size 4.446 4.295 4.502*** 4.115 4.477*** 3.718
(1.362) (1.659) (1.555) (1.700) (1.56) (1.68)
Ratio of family farm members 0.495* 0.525 0.500*** 0.553 0.432*** 0.540
(0.197) (0.240) (0.227) (0.252) (0.220) (0.274)
Head age 46.533*** 49.019 48.665*** 51.209 50.412*** 53.471
(8.041) (8.166) (7.985) (8.251) (8.164) (8.345)
Head education 8.826*** 7.515 8.584*** 7.410 8.210*** 7.187
(2.856) (3.064) (2.813) (3.083) (2.946) (3.164)
1 if smartphone owned 0.293*** 0.153 0.553*** 0.246 0.718*** 0.387
(0.457) (0.360) (0.498) (0.430) (0.450) (0.487)
Mean value are shown with standard deviations in parentheses. *, ** and *** which denote differences between mobile finance users
and nonusers are significant at the 10%, 5% and 1% level, respectively.
2872 J. WANG ET AL.

nonproductive assets for mobile finance users are greater than that for nonusers. The users appear to
be younger, have higher education, and are more likely to use smartphones than nonusers. Regarding
livelihood outcome variables, mobile finance users tend to have higher farm income and per capita
consumption than their nonuser counterparts, and the mean difference is significant at the 1% level.
This finding indicates that a positive correlation may exist between household livelihoods and mobile
finance use. The empirical evidence will be provided in the following section to examine the impact of
the mobile finance use on household livelihood.

3.2. Empirical Model

The empirical model for estimating the impact of mobile finance on household livelihood can be
specified as the follows:
ln Yit ¼ γ0 þ γ1 MFit þ γ2 Xit þ αi þ δt þ εit (1)
Where Yit refers to the outcome variables, which are measured as farm income and per capita
consumption. MFit is a dummy variable indicating the mobile finance use status. Xit represents
a vector of control variables including household demographics characteristics, economic character­
istics and farming characteristics. αi and δt are household fixed effect and time trend, respectively. εit
is an unobservable time varying error term. γi is the estimated coefficient of our interest, representing
the livelihood impact of mobile finance use.
If MFit is an exogenous variable, we can estimate the equation (1) by adopting panel fixed effect model.
However, previous studies have shown that mobile finance use is an endogenous variable due to self-
selection or simultaneity problem (Munyegera and Matsumoto 2016; Riley 2018). This argument is
supported by the fact that the decision to use mobile finance is selected by farmers, and farmers who use
the mobile finance have systematically different characteristics from those non-users. When unobservable
characteristics affect both mobile finance use and household livelihood, self-selection-based endogeneity
issue arises, and this leads to biased parameter estimates. For example, one would expect that farmers with
better ability would prefer to use mobile finance, and their livelihood is more likely to get improved as
well. But the ability of farmers cannot be observed directly, this fact leads to the endogeneity issue in the
variable MFit . An asymptotically consistent coefficient estimate of MFit cannot be obtained.
The control function approach is one of the solutions to correct for the endogeneity issue of mobile
finance use (Wooldridge 2015). It could help solve the problem of endogenous explanatory variables in
linear and nonlinear models with simple computation and flexible assumptions(Michler and
Josephson 2017; Zhou et al. 2020). The approach allows for heterogeneous effects and corrects for
endogeneity problems by modeling the endogeneity in the error term, and thus it could identify the
causal effects or treatment effects (Papke and Wooldridge 2008). The control function approach
consists of a joint estimation of a mobile finance use equation and a livelihood outcome equation.1
In the first stage, Probit model is applied to estimate the relationship between the mobile finance
use and socio-economic variables. The specification is set as follows:
� �
MFit ¼ 1 β1 Zit þ β2 Sit þ δt þ uit > 0 (2)
Where Zit is a vector of exogenous determinants of mobile finance use. Sit is an instrumental variable
for identification purpose. δt controls for time effect. uit is a time varying error term.
The residual term from the first stage model is expected to be the proxy for the unobserved factors
and control for the endogeneity of the livelihood outcome equation. It is rational to use the average
distance between households and physical bank branches as an instrument. The existing studies have
shown that households who use traditional financial services are more likely to be mobile finance users
(He et al. 2017). As banking industry is significantly reshaped by digitalization process, households
close to financial branches have an easy access to mobile finance and thus, are more likely to use it. The
location of bank branches is not expected to affect farm production and individual consumption.
 EMERGING MARKETS FINANCE AND TRADE 2873

Following Di Falco, Veronesi, and Yesuf (2011), we use a falsification test to check the validity of the
instrument. The test results of Table A2 in Appendix show a strong correlation between the instru­
ment variable and mobile finance use. However, the instrument does not significantly affect the
livelihood outcome variables for mobile finance nonusers, thus supporting the validity of instrument.
It is worth mentioning that the distance to the closest bank branches from households’ house was only
asked in the 2017 round of the survey. Considering that the setup of a physical bank branch is
associated with population size, transportation, market environment and economic development, the
number of branches was generally stable across time. Then we use this distance variable of year 2017 as
a proxy for the variable of year 2013 and 2015. In this way, we avoid the adverse impact of missing data
on results, which could reduce the statistical power and produce biased estimates.
In the second stage, the residual term c
uit from the first-stage model is added as an extra variable.
Therefore, the livelihood outcome function equation (1) can be rewritten as follows:
ln Yit ¼ γ0 þ γ1 MFit þ γ2 Xit þ γ3 c
uit þ αi þ δt þ εit (3)
Where the definition of covariates is consistent with the equation (1).

4. Results and Discussion

4.1. The Determinants of Mobile Finance Adoption
The first-stage Probit regression results are presented in Table 2. The marginal effects are calculated
and reported in the Column (2). The results show a strong correlation between the distance to banks
and mobile finance use. Research finding is in accordance with the results of Guo and Wang (2020)
who showed that households adopting traditional financial services are more able to use mobile
finance. Households with larger land size and higher assets are more likely to be mobile financial
users. Recent findings by Ma and Wang (2020) showed that wealthy households have better access to
Internet and this enables them to obtain financial services. The positive coefficient on the credit
constraint suggests that households subject to credit constraint tend to use mobile finance than
unconstrained households. This is not surprising because mobile finance could help them meet
their financial needs. If family size increases by one person, the 1.4% more likely its members are to
use mobile finance. But households with a large proportion of farm labors are relatively less likely to
use the service. An explanation is that compared with non-farm labors, the family farm labors have less
demand for financial assistances such as remittances through mobile finance. The smartphone users
are 11% more likely to use mobile finance. We also find that household heads with higher education
are more likely to adopt mobile finance. This is in line with the study of Khanal, Mishra, and Koirala
(2015) who found that better-educated people are better informed about the modern technology. The
age of household head follows a reverse U-shaped curve (see Appendix Figure A1), suggesting that the
probability of mobile finance use is higher in middle-age farmers.

4.2. The Impact of Mobile Finance Use on Household Livelihoods

The second-stage fixed effects panel regression results on the impact of mobile finance use on farm
income and household consumption are presented in Table 3. The residual from the first-stage model
is included as an additional variable to correct for the endogeneity issue of mobile finance use.
A significant coefficient of the residual term implies that mobile finance is endogenous as expected
and, therefore, our procedure is necessary.
Column (1) shows that the use of mobile finance has a significantly positive effect on farm
income. Mobile finance raises users’ farm income by 10.1% compared with non-users at
a significance level of 5%. The finding of the positive impact of mobile finance use on household
farm income has recently been supported by Sekabira and Qaim (2017) and Parlasca, Johnen, and
Qaim (2022). Their findings showed that mobile money use in Africa has increased agricultural
2874 J. WANG ET AL.

Table 2. Probit model estimation of mobile finance use.

Coefficients Average marginal effects
(1) (2)
Distance to banks (ln) −0.236*** −0.047***
(0.035) (0.007)
Farm size (ln) 0.074*** 0.015***
(0.023) (0.005)
Machinery value (ln) 0.014*** 0.003***
(0.005) (0.001)
Assets (ln) 0.211*** 0.042***
(0.017) (0.003)
Credit constrained 0.096* 0.019*
(0.051) (0.010)
Household size 0.068*** 0.014***
(0.014) (0.003)
Ratio of family farm members −0.331*** −0.066***
(0.095) (0.019)
Smartphone user 0.534*** 0.107***
(0.039) (0.008)
Head age 0.052***
(0.019)
Head age square −0.001***
(0.000)
Head education 0.037*** 0.007***
(0.006) (0.001)
Constant −4.935***
(0.558)
Year dummy Yes
District dummy Yes
Observations 8805
pseudo R2 0.223
Standard errors are in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1. The marginal effect of
age is shown in Appendix Figure A1.

Table 3. The impact of mobile finance use on farm income and per capita consumption.
ln (farm income) ln (per capita consumption)

(1) (2) (3) (4)

Residual term from the first-stage model 0.030 0.030 −0.083** −0.083**
(0.066) (0.067) (0.036) (0.036)
Mobile finance 0.101** 0.280** 0.142*** 0.122**
(0.051) (0.125) (0.025) (0.056)
MFS use*farm size (ln) −0.076* 0.001
(0.045) (0.020)
MFS use*Credit constrained −0.002 0.091*
(0.092) (0.049)
Farm size (ln) 0.182*** 0.196*** 0.013 0.013
(0.040) (0.036) (0.017) (0.017)
Credit constrained −0.02 −0.022 −0.002 −0.021
(0.041) (0.046) (0.022) (0.025)
Year dummy Yes Yes Yes Yes
Observations 8805 8805 8805 8805
Adjusted R2 0.508 0.508 0.463 0.463
The control variables are the same as Table 1. Due to space constraints, the full results are shown in Appendix Table A3. Standard
errors are clustered at the village level. ***p < 0.01, **p < 0.05, *p < 0.1.

marketing, which helps farmers fetch better prices for sales, and thus finally contributes to an
increase in farm income, though the share of farmers who uses mobile finance services is still not so
high. Column (3) reports the coefficient estimates of the impact of mobile finance use on per capita
consumption. We find that mobile finance use increases per capita consumption by 14.2% at
a significance level of 1%. Such a positive effect of mobile finance use on household consumption
 EMERGING MARKETS FINANCE AND TRADE 2875

is also consistent with findings elsewhere for other developing countries (Munyegera and
Matsumoto 2016; Suri and Jack 2016). For instance, Munyegera and Matsumoto (2016) found
that adopting mobile finance increases per capita consumption by 39% in Uganda. The magnitude
of impact depends on the way that mobile finance services are provided, and household socio-
economic conditions. Therefore, our empirical results support the Hypothesis 1 that using mobile
finance can strengthen household financial capability and improve farmers’ livelihoods. Note that
the marginal effect for consumption is larger than income, and it implies that mobile finance has
positive consumption smoothing effect.
To better understand whether the mobile finance use mitigates financial exclusion faced by
disadvantaged farmers, we added two interaction terms, which are mobile finance and farm size, as
well as mobile finance and credit constraint dummy. By comparing the farm income and consumption
between smallholder farmers and their counterparts, and between farmers who have received credit
rationing and those who have not been rationed, we evaluate the differential impact of mobile finance
in improving the financial inclusion of vulnerable groups.
The coefficient of interaction term between mobile finance use and farm size in Column (2) is
significantly negative with a magnitude of −7.6%, indicating that mobile finance use helps small-scaled
farmers obtain higher marginal farm income. Households with small farms benefit more from using
mobile finance. The estimated coefficient of the interaction term between mobile finance use and
credit constraint in Column (4) is positive and statistically significant. This suggests that credit-
constrained households using mobile finance no longer experience a decrease in per capita consump­
tion. Mobile finance could significantly alleviate the financial exclusion faced by credit-constrained
farmers. Thus, our Hypothesis 2 is also confirmed. It implies that mobile finance has the potential to
provide access to financial services for the financially excluded people and to improve their livelihoods.
We also present robustness checks in Appendix Table A4 where the mobile finance adoption lagged
two year is used to address the reverse causality of mobile finance on household livelihood. The results
support our main findings above.

4.3. Further Analysis

Since mobile finance is a multi-dimensional concept, we not only examine the overall impact of the
mobile finance use on household livelihood, but also distinguish between different functions in the
regression analysis. Given that mobile payment services are mainly used for transactions and remit­
tances, and that mobile banking services help farmers access timely financing and enable asset
accumulation, comparison of different impacts of mobile payment and mobile banking services on
farmers’ livelihoods can help identify the possible mechanism. We divide users into two categories,
only mobile payment users and mobile banking user, to further analyze the differential impact of
different types of mobile finance on the welfare of rural households.
Table 4 presents the results of the impacts of mobile payment and mobile banking use on farm
income and per capita consumption. The regression results in column (1) show that mobile payment
has a significant role in increasing household farm income. For farmers only using mobile payment
services, the agricultural production income increases by 11.1%. This finding is in line with previous
findings and supports the idea that mobile payment can relax the payment threshold and meet the
diverse payment needs of rural households (Beck et al. 2018). By contrast, the impact of mobile
banking is not significant, which implies that the role of mobile payment in increasing farm income is
stronger than that of mobile banking. The possible reason is that mobile banking is related to the
wealth management, which can help households trade off money allocation between farm investment
and consumption. However, allocating more budget to consumption would result in less money being
allocated to agricultural production. The results in column (2) suggests that mobile banking indeed
contributes more to higher per capita consumption than mobile payment does, although both mobile
payment and mobile banking have significant positive impact on consumptions.
2876 J. WANG ET AL.

Table 4. The impact of different types of mobile finance on household livelihood.

ln (farm income) ln (per capita consumption)
(1) (2)
Residual term from the first-stage model 0.031 −0.085**
(0.067) (0.036)
Mobile payment 0.111** 0.136***
(0.053) (0.026)
Mobile banking 0.167 0.178***
(0.143) (0.064)
Year dummy Yes Yes
Observations 8805 8805
Adjusted R2 0.508 0.463
The control variables are the same as Table 1. Standard errors are clustered at the village level in parentheses.
***p < 0.01, **p < 0.05, *p < 0.1.

5. Conclusion
In this paper, we analyzed effects of mobile finance use on household livelihoods by employing three-
year panel data of 2,935 farmers in rural China. To control for endogenous mobile finance use,
a control function approach was applied. We also estimated the heterogeneous impact of mobile
finance use on different population groups. Mobile finance users are further divided into only mobile
payment users and mobile banking users to investigate the usage of each type on household livelihood.
The first-stage results of the control function approach presented that farm size and assets, access to
the smart phone, and education levels are main factors that drive farmers to use mobile finance.
The second-stage estimation results revealed that mobile finance use prompts farmers to increase farm
income and per capita consumption. Smallholder farmers and farmers subject to credit constraint tend
to benefit more from mobile finance use relative to their counterparts. They experience significant
livelihood improvement by using mobile finance. The additional analysis showed that both mobile
payment and mobile banking use can increase household livelihood significantly, but the impact is
heterogenous where the mobile payment plays a larger role in farm income, while mobile banking has
a larger impact on household consumption.
Based on above results, we provide the following policy recommendations. First, it is necessary for
financial institutions and service providers to reduce the complexity of mobile financial service, and to
provide farmers with more trainings to enhance their basic financial knowledge. Although mobile
finance empowers farmers to improve livelihoods, the uptake is still limited due to the low education
levels and restrictions on access to the mobile finance. Therefore, service providers should pay more
attention to the acceptability of farmers and improve the usability of products when designing mobile
financial products. Second, governments can play a vital role in expanding physical infrastructure and
building a cost-effective mobile finance ecosystem. The limitations in network coverage are major
obstacles to the expansion of mobile financial services in rural areas. Thus, accelerating network
infrastructure construction and facilitating interconnection is important to expand mobile finance
access and improve service quality. Third, it is necessary to promote mobile financial innovations that
target the more vulnerable sectors of farmers and foster livelihood development in rural communities.
To meet the diverse financial needs of smallholder households, financial institutions shall offer a wide
range of products and services that can directly target subsistence farmers and help them become more
resilient to financially difficult time. Fourth, governments shall take active measures to prevent the
platforms to abuse their market power when platform companies are growing to dominate market. To
ensure that the market remains “contestable,” governments should make great efforts to protect
consumer rights and control financial risks (Ariss 2010).
To the limitations of the study, we did not discuss the cost of providing mobile financial services in
this paper, such as the investment in internet infrastructure and misuse of market power. And some
important variables could be missing in our research, such as financial literacy. The discussion on the
 EMERGING MARKETS FINANCE AND TRADE 2877

mechanism remains understudied and more empirical research is needed to confirm the impact
pathways. More discussions on differential impacts of mobile finance use on financial inclusion are
also needed for future research.
Moreover, some caveats should be mentioned. Though the empirical evidence shows that mobile
finance could increase the livelihood of farmers in China, the negative side of mobile finance has not
been well studied. For instance, Morawczynski (2009) finds that urban migrants may reduce the visits
to their wife in rural areas, and this causes some social problems. With the development of mobile
finance in China, financial frauds emerged and harmed both finance providers and users. Also, some
large e-business and mobile finance platforms execute their market powers that harmed consumer
welfare. Governments should tighten regulations of financial technology companies by establishing
a comprehensive regulatory framework to protect users against fraud and enhance financial stability.

Note
1. An alternative methodological approach could be the endogenous switching regression (ESR) model. The ESR
model is not as flexible as the CF approach to study the interaction effects which is used to test the hypothesis 2.
Therefore, we decided to use the CF approach in the end.

Acknowledgments
This work was supported by the National Natural Science Foundation of China under Grant number 71761147004,
71973138 and 71573262; the Agricultural Science and Technology Innovation Program of CAAS under Grant number
ASTIP-IAED-2021-03 and China Scholarship Council under Grant number 201903250084.

Disclosure Statement
No potential conflict of interest was reported by the author(s).

Funding
This work was supported by the China Scholarship Council [201903250084]; National Natural Science Foundation of
China [71573262,71761147004,71973138]; Agricultural Science and Technology Innovation Program of Chinese
Academy of Agricultural Sciences [ASTIP-IAED-2021-03].

ORCID
Xiaohua Yu http://orcid.org/0000-0003-4257-8081
Jan-Henning Feil http://orcid.org/0000-0001-5958-5822

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