Enhancing Financial Inclusion: The Role of Digitalization in SME Capital Access in China's Pilot Zones

Abstract

The impact of a new digitization strategy on the access to capital for small and medium-sized enterprises (SMEs) in seven pilot zones of China is examined in this study. Given the dearth of evidence demonstrating digitalization's positive effects on financial inclusion, we use a quasi-natural experiment approach to assess these claims. Based on our findings, digitalization outperforms more traditional approaches in assisting SMEs with their finance constraints and fostering financial inclusion. To alleviate information asymmetry and facilitate SME financing, digital financial services are particularly important for investment, insurance, credit, money markets, and payment, among other uses. These results encourage financial institutions and SMEs to continue their digital transformation and highlight the significance of information-bearing via digital channels.