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• Inclusive finance is considered a critical element for inclusive growth, enabling the poor to escape income poverty.
• An evolutionary game model analyzes the strategies between inclusive financial institutions and the poor in poverty reduction.
• There is a high incidence of poverty and financial exclusion in rural China.
• The study assesses the effectiveness of inclusive financial development on the poor with different labor capacities in rural China from 2010 to 2016.
• Data covers 21 provinces, based on China Family Panel Studies and relevant statistics.
• Poverty alleviation effects of inclusive financial development vary among the poor with different labor capacities.
• Targeting services to the working-age population in rural areas helps financial institutions maintain sustainable development while alleviating poverty.
• Developing inclusive finance in permeability, usability, and utility can significantly reduce multidimensional poverty.
• Strengthening support for financial resources for the working-age population and improving rural inclusive finance quality and affordability are vital.

Introduction

• The United Nations proposed developing an inclusive financial system in 2005 to achieve the Millennium Development Goals on ending extreme poverty and hunger.
• Inclusive finance effectively achieves poverty alleviation and sustainable development.
• Poverty includes hunger and malnutrition, limited access to education and basic services, discrimination, and lack of participation.
• Multidimensional poverty is analyzed using a new method focusing on an individual's position in living conditions and capacity.
• Inclusive financial development can effectively alleviate multidimensional poverty.
• China faces the task of ending poverty to achieve sustainable development.
• The Chinese government prioritizes agriculture, rural areas, and rural people under the rural vitalization strategy.
• The goal is to ensure the rural poor have food, clothing, education, medical treatment, and housing, aligning with United Nations multidimensional poverty alleviation policies.
• Development-oriented poverty alleviation shifts from "blood transfusion" to "blood creation", emphasizing self-reliance.
• Rural poor lack money for nutrition, welfare, and production development.
• They are often excluded from financial sectors, hindering access to needed services.
• Inclusive finance plays a critical role in poverty alleviation by increasing access to affordable financial services.
• Inclusive finance empowers the rural poor, improves livelihoods, protects against shocks, and provides funds for jobs and learning.
• Developing targeted inclusive finance is a key financial policy in China to promote economic growth.
• Inclusive finance does not provide social assistance, it addresses economic development issues to sustain institutions.
• Clients need development potential and ability to repay capital and interest.
• The poor working-age population possesses the strongest labor capacity and development potential.
• Rural poor working-age people improving their multidimensional poverty helps promote inclusive financial development and raise human capital.
• Financial and labor resources are vital for economic growth and promoting local economy development.
• Targeted poverty reduction and alleviation aims to sustain institutional development and achieve poverty alleviation.
• Rural China experiences a high incidence of poverty and serious financial exclusion.
• The study focuses on the poverty alleviation effects of rural inclusive financial development under the rural vitalization strategy.
• It uses data from China Family Panel Studies and statistics from 21 provinces to analyze the poverty reduction effects of financial development.

Innovations

• Analysis of the equilibrium strategies of inclusive financial institutions and the poor in poverty reduction activities from an evolutionary game perspective.
• Analysis of the poverty alleviation effects of rural inclusive financial development on the rural poor with different labor capacities.

Article Organization

• Section 2 reviews related literature.
• Section 3 builds an evolutionary game model.
• Section 4 presents methods for rural inclusive financial development and multidimensional poverty measurement.
• Section 5 analyzes empirical results.
• Section 6 provides conclusions and suggestions.

Literature Review

• Studies suggest inclusive financial development provides the poor with access to credit, savings, and services, enabling direct financial functions for poverty reduction.
• Microfinance in South Asia contributes to the economic productivity and social welfare of poor women and their households through empowerment.
• Access to finance enables the poor to make long-term decisions, participate in activities, and cope with shocks, reducing poverty and inequality.
• Access to credit is a key instrument to access primary services and social activities.
• Inclusive finance empowers the poor to exploit economic and social opportunities.
• Inclusive finance increases poor farmers' income by releasing credit constraints, improving risk resistance, and reducing service costs.
• Rural inclusive financial development enhances economic development, optimizes income distribution, and results in income growth and poverty alleviation.
• Restraining financial development increases disparity, exacerbates imbalance, and results in social exclusion, hindering poverty alleviation.
• Inclusive finance has varying effects on different poor groups, mainly benefiting slightly poor families, with less impact on extremely poor families.
• Access to finance can alleviate poverty, but funds are allocated to non-poor rather than absolute poor sections.
• Inclusive financial development effectively alleviates poverty by promoting economic growth, but effects vary among income groups.
• High-income rural poor benefit more from poverty reduction and income increase than low-income rural poor.
• Current literature overlooks the premise that inclusive financial institutions are willing to provide services to the poor.
• The game between inclusive financial institutions and the poor might be related to financial exclusion and poverty.
• Credit default can lead to financial exclusion, while trust promotes cooperation between institutions and the poor.
• A bank's lending decisions depend on the possibility of farmers' repayment.
• The poor need financial resources to enhance their production for poverty alleviation.

Limitations

• The definition of poverty is mainly limited to low income levels.
• Effect of poverty alleviation judged by income growth among all people.
• Existing studies do not address poverty reduction effects of inclusive finance on the poor with different capacities, limiting precision analysis.

Methods

• An evolutionary game model analyzes strategies between inclusive financial institutions and the poor in poverty reduction.
• Study examines the relationship between inclusive financial development and multidimensional poverty alleviation in rural China.

Model

• Focuses on absolute to relative poverty and social exclusion.
• Uses multidimensional poverty to identify the poor.
• Defines this poverty by lack of capacity in many aspects.
• Financial products enhance self-development, requiring access to alleviate poverty.
• Inclusive finance is a commercial activity that may refuse services to maintain development.
• With no mechanisms to escape poverty, financial institutions and the poor are stakeholders in a game. Financial institutions and the poor aim to reduce poverty, but have rationality and limited information.
• The poor need loans for business.
• They have two strategies: apply or not apply for loans.
• Although loans can reduce poverty, the poor may not repay.
• Institutions also have two strategies: provide or not provide loans.
• Suppose financial institutions provide loans with probability x; the poor apply with probability y.
• The equation 1-x is the probability of institutions not providing loans.
• The equation 1-y is the probability of the poor not applying for loans.
• The return matrix for financial institutions and the poor is shown in Table 1.

Findings

• Points (0,0) and (1,1) are the two equilibrium points of ESS.
• Obtaining loans aids in poverty reduction, equilibrium (1, 1) is the optimal point.
• As inclusive finance, the poor apply for loans and the financial institutions provide them.
• The evolutionary game is not achieved overnight.
• Institutions and poor adjust strategy by own return and make choice in a dynamic process.
• The region of points (x*, y*), (0,1), (1, 1) and (1,0) will converge to (1,1).
• The region of points (x*, y*), (0,1), (0,0) and (1,0) will converge to (0,0).
• The stronger the labor capacity of the poor, the higher the success rate of their production and management.
• The stronger the labor capacity and development potential in the poor working-age population, the easier the dual goals of sustaining institutions and poverty alleviation can be achieved.
• Numbers of indicators used to create rural inclusive financial development.

Variables Measurement

• Data limitations mean indicators have to stand in for each other.
• The study uses “Euclidean distance method" as formula (2) as shown.
• There is shown a wide gap between regions in the development level of rural inclusive finance.
• The study uses multidimensional poverty to identify the poor and measure their level of poverty.
• Indicators include poverty, health, education, insurance, and employment.
• These are measured using “dual cutoff method" of Alkire and Foster.
• Data of the survey, 2010, 2012, 2014 and 2016, comes from the database of CFPS.
• The paper constructs the benchmark regression model (3) shown.

Results

• Rural inclusive financial development can effectively reduce the multidimensional poverty.
• In some dimensions rural populations have remained constant in recent years.