Financial Inclusion in the Era of the Platform Economy: Opening the black box of digital lending to MSMEs in China

A variety of studies have shown the benefits of inclusive financial systems for reducing poverty as well as accelerating economic growth and thus enhancing human development (Sarma and Pais, 2011). In this context the creation of an inclusive economic environment for Micro, Small and Medium Enterprises (MSMEs) is a key condition for the described positive effects to fully unfold.Yet, despite their vital role in the economic system MSMEs worldwide face considerable constraints when accessing credit, arguably the key condition for growth and innovation. In recent years the vast development of Information and Communication Technologies (ICTs) and the subsequent involvement of technology driven private sector businesses (FinTech) in the area of [organizational] micro-finance has fuelled the hope to effectively address this challenge in the future. Although a comprehensive provision of credit by these companies remains at this point of time a distant vision in most parts of the world the development in China has taken a considerably different turn. Drawing on a wide-range of data generated in firm-specific ecosystems, Multi-sided platforms (MSPs) such as Alibaba and Tencent have in recent years entered the financial service sector and become the world leader in what Xie et. al (2015) coin as 'Internet Finance'. This transformation is particularly visible in the vast rise of Alibaba's affiliate Ant Financial, the most valuable start-up unicorn in the world which has so far issued loans to more than 20 million MSMEs in the country. Furthermore, and based on the conjecture that their services successfully promote Financial Inclusion, Chinese Internet Finance companies are in cooperation with international organizations rapidly expanding internationally. However, despite growing evidence that digital lending effectively addresses challenges of organizational financial exclusion in China and the assumption that this success can and should be repeated in other parts of the world, it is surprising to note that the development trajectory and inner workings and structures of Internet Finance in the country have so far largely remained a closed 'black box'. Following Bailey and Barleys (2019) as well as Hyysalo, et. al's (2019) call to study digital technologies from multiple perspectives and to extend scrutiny beyond innovation to institutional changes, the proposed research project aims to open the 'black box' of digital lending to MSMEs in China by investigating the phenomenon on different levels and in different spaces. Drawing on a multisided-ethnography at a Chinese Internet Finance company and an MSME, the research project addresses the following research questions:
How have MSPs established themselves as a leading source of formal financing for MSMEs in China?
How is the platform ecosystem of Internet Finance companies shaped by and shaping the lending process?
How does digital credit from Internet Finance companies shape the accounting practices of organizational borrowers?
By doing so, the project not only contributes to an emerging body of research on the rapidly developing phenomenon of Internet Finance and its effects on MSMEs but also to research examining the mechanisms of platform expansion and the accelerating shift towards a platform economy more broadly.