Inclusive Finance and Entrepreneurship: “To Give People Fish” or “To Teach People How to Fish”?, a paper co-authored by our school’s Professor Li Jianjun and PhD student Li Juncheng, was published in the 2020 1st issue of Journal of Financial Research.
At the present stage, the Chinese economy has shifted from high-speed to medium-to-high-speed growth, with traditional comparative advantages gradually weakened. Underpowered economic growth has become the most critical issue that suppresses economic development. As the economy transitions to a new normal with more advanced forms, more complex division of work and more rational structures, the growth drivers also need to transform into innovations from the previous production factors and investments. It is against such a background that the Chinese government calls for “mass entrepreneurship and innovation” in hopes of injecting new vitality into economic development.
In this context, the paper studies and focuses on the relationship between financial support and entrepreneurial activities, and looks into the impact and effect of inclusive finance on entrepreneurial decision-making. Based on data from the China Household Finance Survey, this paper first establishes an inclusive finance indicator system, and measures the level of inclusive finance of prefecture-level cities across the country through principal component analysis. Then on such a basis, it empirically analyzes the impact of inclusive finance on entrepreneurship. It finds through research that the development of inclusive finance has an obvious boosting effect on entrepreneurship. Robustness tests considering multiple model settings, different ways of measuring independent and dependent variables, and discussions about endogenous problems do not alter the main conclusion of the paper. On this basis, it examines how inclusive finance affects entrepreneurship. The result shows that inclusive finance boosts entrepreneurship mainly by enhancing residents’ financial capacity, other than by alleviating capital constraints on households. Then the paper empirically tests the moderating effect of financial education on inclusive finance’s impact on entrepreneurship. It finds that with the popularization of financial education, the development of inclusive finance has an intensified boosting effect on entrepreneurship. By distinguishing different dimensions of inclusive finance, it finds that financial education fulfills its moderating effect on the impact of inclusive finance on entrepreneurship by increasing the boosting effect of the use of financial services on entrepreneurship. The research carried out by the paper shows, compared with traditional financial development, the fulfillment of financial popularization can better stimulate the entrepreneurial spirit of residents.
Compared with previous documents, this paper’s contributions can be reflected at least in the following aspects: First, an increasing number of scholars have confirmed that the existence of financial exclusion makes financial deepening on which traditional financial development theories rely unable to exert benign effects on supporting entrepreneurship and innovation activities. Therefore, the perspective of financial popularization might be a breakthrough by which to study the issue of how finance supports entrepreneurship. However, the supporting role of inclusive finance in entrepreneurship has been rarely mentioned so far. Second, restricted by the availability of micro data, studies on Chinese households are relatively few. Hence financial issues at the micro level have long been ignored by scholars. Nevertheless, by using data from the China Household Finance Survey, this paper measures the level of inclusive finance of prefecture-level cities across the country through principal component analysis. On this basis, it empirically analyzes the effect of inclusive finance on entrepreneurship among residents, which differs from previous single-perspective studies mostly at the macro level, enriches and expands the theories and means for finance to support entrepreneurship. Third, most existing documents stop short at looking into the effect of financing mechanisms on entrepreneurial activities. But this paper, from the perspective of resources and capacities required by entrepreneurship, studies the mediation effects of many financial capacities on how inclusive finance promotes entrepreneurship, such as capital supply, use of medium of exchange, risk perception and risk management. Its research conclusion can help further open up the black box of how inclusive finance affects entrepreneurial activities.
Inclusive finance plays a visible role in promoting entrepreneurship, which provides the basis of references for policy formulation as China develops inclusive finance and launches “mass entrepreneurship”. First, improve top-level design and promote the development of financial inclusiveness. The rollout of top-level design will help facilitate the overall financial system to provide better financial services to weak areas or fields, and disadvantaged regions and groups, and fulfill more balanced and fuller economic development. Second, increase the breadth of services and accessibility of financial services. It is important to give play to the supporting effect of inclusive finance on entrepreneurs by rationally planning for outlet distribution, providing financial services to lower-tier cities and rural areas, and ensuring the coverage of the “last mile” of financial services. Third, attach importance to coordinated development and form an inclusive finance services system. In addition to strengthening credit support, the development of inclusive finance, as a systemic project, shall also include the furtherance of the upgrade of medium of exchange, improvement of payment and clearing services and expansion of risk management channels, so that residents can fully enjoy the benefits brought by the development of inclusive finance.
