The Impact of Fintech on the Welfare of Rural Households in Iran

Fintech is one of the financial innovations that affects the development of financial markets, the growth of financial institutions, and the provision of financial services which leads to the creation of new products, new business models, and new applications. Fintech has different effects on the welfare of urban and rural households according to society's access level to other financial services. On the one hand, fintech leads to an increase in economic development and welfare of households through the reduction of information asymmetry, efficient allocation of financial resources, the reduction of financing cost, the accumulation of capital, and the increase in the individual education level. On the other hand, fintech reduces economic development and the household's welfare by increasing risk and negatively affecting financial regulations. During the last two decades, Iran's economy has experienced significant growth in the fintech industry along with the expansion of technology and information infrastructure, the development of the internet, and financial services. Therefore, analyzing the impact of fintech on rural households' welfare as an index to reflect the purchasing power and the ability to acquire living facilities is of special necessity. Despite this, the role and importance of fintech on rural households’ welfare has not been examined in any of the country's research. Considering the importance of the subject, the main goal of the present essay is to investigate the effect of fintech on the welfare of rural households in the provinces of Iran from 2014 to 2020 using the econometric approach of panel data.
Method: In the research model specification, welfare was considered a function of fintech, economic growth, financial development, government spending, and trade openness. Also, two indices of the Sen and Engel coefficient were used to measure the variable of rural households’ welfare. The research area includes Iran’s provinces and covers annual time series data for 2014 to 2020. The consumer price index in the base year 2016 was applied to convert the nominal data to real. Since in the present research, the number of cross−sections is more than the length of the time series period, to estimate the model and investigate the effect of fintech on rural households’ welfare, the panel generalized method of moments approach was used. In the panel GMM, the dependent variable with a lag is entered into the model as an explanatory variable along with other independent variables, which solves the problem of serial autocorrelation and, due to the use of the method of moment estimators remove the heteroskedasticity problem. Specifications such as the disappearance of the variable's endogeneity and the effectiveness of both fixed and random effects in model estimation make the dynamic panel model approach preferable to other static patterns.
Results: The findings show that fintech has a positive effect on social welfare and a negative impact on the Engel coefficient. The fintech growth leads to an increase in entrepreneurship and household income by reducing borrowing costs and access to financial services and increasing the non−food consumption of goods. Economic growth has a positive effect on social welfare growth and a negative influence on the Engel coefficient. Improving economic growth by increasing income and non−food consumption expenditures enhances social welfare and reduces the Engel coefficient. Financial development has a negative influence on social welfare growth and a positive effect on the Engel coefficient. The inefficiency of the financial systems in Iran leads to a decrease in the non−food consumption goods and a decrease in welfare by reducing economic growth and individual real income. The government expenditure per capita growth has a positive effect on social welfare growth and a negative impact on the Engel coefficient. Increasing government spending through increasing productivity leads to improved income and welfare growth. The degree of trade openness has a positive effect on social welfare growth and a negative influence on the Engel coefficient. Increasing the degree of trade openness through the transfer of knowledge and improving technology leads to an increase in income and non−food consumption, and as a result, an increase in welfare.
Discussion and Conclusions: Expanding access to credit is considered one of the most important factors to reduce poverty and improve the welfare of rural households. In such a way, access to credit by increasing income and smoothing consumption increases the welfare of poor rural households. Fintech leads to an increase in rural households' access to financial credit by providing innovative business models and new methods of financial intermediation. Upsurging access to financial credit leads to an expansion in entrepreneurship and raises investment in the human capital of individuals living in rural areas. Increasing entrepreneurship in rural areas and increasing investment in human capital also leads to increased employment, raised income, and growth in the welfare of rural households. Although the concentration of banks and other traditional financial institutions in urban areas has hindered the participation and investment of rural households in the financial markets, However fintech, by taking advantage of the advances and innovations in the field of technology, such as the internet, mobile phones, and artificial intelligence, has caused the remove of location barriers, raised quick and easy access to financial services, reduced information asymmetry, and declined transaction costs which in turn provides the possibility of participation and investment of individuals living in rural areas in financial markets. In such a way, poor rural individuals with small savings can also participate in the economy's financial sector. Participation and investment in the economy’s financial sector lead to an increase in profitability and income and, as a result, an increase in the welfare of rural households. Considering the significant consequence of fintech on the welfare of rural households, it is recommended that the government adopts comprehensive policies, including the creation of regulatory laws to direct fintech, increasing investment in mobile phone and internet infrastructure to increase rural households access to the internet, increasing investment in the field of artificial intelligence, and ultimately training rural households to use the benefits of artificial intelligence.