Digitalization has spread to all areas of life in the era of technical advancement. It has the potential to revolutionize socio-economic growth parameters by forming a symbiotic relationship with inclusive growth and sustainable development. The purpose of this study is to explore the contribution of digitalization in rural community development and banking, with a critical review of case studies on Ant Financial and Alibaba's FinTech initiatives. Ant Financial aims to revolutionize China's financial network, including payments, wealth management, and loans, by focusing on underserved markets like low-income individuals in rural areas.

1. THE IMPACT OF DIGITALIZATION ON COMMUNITY
DEVELOPMENT IN RURAL AREAS AND FUTURE WORLD OF
BANKING
MR.IRFAN ZEJNULLAHU
PRISHTINE 2021

2. ABSTRACT
Abstract
In the era of technical advancement, where everything revolves around the ``e`` world,
digitalization has spread its wings over all the spheres of life.The immense use of digital devices
and our growing dependency on them clearly states that digitalization is the need of the hour and
has great potential to revolutionize the social-economic growth parameters thus, forming a
symbiotice relationship with all inclusive growth and sustainable development.It has become that
important instrument which has simplified the functioning and processes in various areas like
administration, regulation, planning and operations of the socio-economic domain by ultimately
enriching the quality of life.This very feature of the digital age results in sustainable
development as when the societies are digitally empowered, they are more Conscious,
Connected, Compliant, Collaborative and Content towards their own growth and in return they
work in tandem as responsible resources for nation`s future prospects.The purpose of this study
was defined as to explore the contribution of digitalization (the role of digital technology) in
community rural development and banking with a critical look at review of Ant Financial and
Alibaba`s case study which provides an overview of the FinTech-based on digital technology.
Ant Financial, China`s largest FinTech company in the making, is set to revolutionize the
China`s financial network, including payment, wealth management and loans.It focuses on the
underserved markets by the major Chinese banks; the low-income individuals, especially those
in the rural areas.Ant Financial has leveraged on Taobao`s platform, along with Alibaba`s rural
Taobao Strategy, to give out loans and help traditional agricultural business to set up shops on
TaoBao.Alibaba also introduced Taobao digital rural service hubs (rural service centers), where
villagers can get accustomed to making purchase and paying bills online, aswell as picking up
items they bought on Taobao.
Alibaba provides computers and trains villagers to serve as its representatives in the centers,
which are often in convenience stores.With Fintech advancements, access to products and
financial service is becoming more accessible than ever.Ensuring a level playing field for
consumers that live in rural locations or regions without the structures of an urban economy is
vital in achieving full financial and social inclusion.
II

3. Albanian Version
Abstarkt
Në epokën e përparimit teknik, ku gjithçka sillet rreth botës "e", dixhitalizimi ka përhapur krahët
e tij në të gjitha sferat e jetës. Përdorimi i madh i pajisjeve dixhitale dhe varësia jonë në rritje prej
tyre deklaron qartë se digjitalizimi është nevoja e orës dhe ka potencial të madh për të
revolucionarizuar kështu parametrat e rritjes social-ekonomike, duke formuar një marrëdhënie
simbiotike me rritjen gjithëpërfshirëse dhe zhvillimin e qëndrueshëm. është bërë instrument i
rëndësishëm i cili ka thjeshtuar funksionimin dhe proceset në fusha të ndryshme si administrata,
rregullimi, planifikimi dhe veprimet e fushës socio-ekonomike duke pasuruar përfundimisht
cilësinë e jetës. Ky tipar i epokës dixhitale rezulton në zhvillim të qëndrueshëm pasi kur
shoqëritë fuqizohen në mënyrë dixhitale, ato janë më të ndërgjegjshme, të lidhura, pajtuese,
bashkëpunuese dhe përmbajtëse ndaj tyre rritjen vetjake dhe në këmbim ata punojnë së bashku si
burime përgjegjëse për perspektivat e ardhshme të kombit Qëllimi i këtij studimi u përcaktua si
të eksploronte kontributin e dixhitalizimit (roli i teknologjisë dixhitale) në zhvillimin rural dhe
bankar të komunitetit me një vështrim kritik në rishikimin e rastit të studimit të Ant Financial
dhe Alibaba, i cili siguron një përmbledhje të FinTech- bazuar në teknologjinë dixhitale.
Ant Financial, kompania më e madhe FinTech e Kinës në zhvillim, është vendosur të
revolucionarizojë rrjetin financiar të Kinës, duke përfshirë pagesat, menaxhimin e pasurisë dhe
huatë. Ajo fokusohet në tregjet e papërmbajtur nga bankat kryesore kineze; individët me të
ardhura të ulëta, veçanërisht ata në zonat rurale. Ant Financial ka shfrytëzuar platformën e
Taobao, së bashku me Strategjinë Taobao rurale të Alibaba, për të dhënë hua dhe për të
ndihmuar biznesin tradicional bujqësor për të ngritur e-dyqane(online) në TaoBao. Alibaba
gjithashtu prezantoi qendrat digjitale të shërbimit rural Taobao (qendrat e shërbimit rural), ku
fshatarët mund të mësohen të bëjnë blerje dhe të paguajnë faturat në internet, si dhe të marrin
sendet që blenë në Taobao.
II

4. German Version
Abstrakt
Im Zeitalter des technischen Fortschritts, in dem sich alles um die ``e``-Welt dreht, hat die
Digitalisierung ihre Flügel in alle Lebensbereiche ausgebreitet der Stunde und hat großes
Potenzial, die sozioökonomischen Wachstumsparameter zu revolutionieren und so eine
Symbiose mit allumfassendem Wachstum und nachhaltiger Entwicklung zu bilden. Es ist zu
einem wichtigen Instrument geworden, das die Funktionsweise und Prozesse in verschiedenen
Bereichen wie Verwaltung, Regulierung, Planung und Betrieb des sozioökonomischen Bereichs
durch eine letztendliche Verbesserung der Lebensqualität. Genau dieses Merkmal des digitalen
Zeitalters führt zu einer nachhaltigen Entwicklung, da die Gesellschaften, wenn sie digital
ermächtigt sind, bewusster, verbundener, konformer, kollaborativer und zufriedener sind eigenes
Wachstum und arbeiten im Gegenzug als verantwortungsvolle Ressourcen für die
Zukunftsaussichten der Nation Der Zweck dieser Studie war es, den Beitrag der Digitalisierung
(die Rolle der digitalen Technologie) in der ländlichen Entwicklung und im Bankwesen zu
untersuchen, mit einem kritischen Blick auf die Fallstudie von Ant Financial und Alibaba, die
einen Überblick über die FinTech- basierend auf digitaler Technik.
Ant Financial, Chinas größtes FinTech-Unternehmen, wird das chinesische Finanznetzwerk
revolutionieren, einschließlich Zahlungsverkehr, Vermögensverwaltung und Kredite. Es
konzentriert sich auf die von den großen chinesischen Banken unterversorgten Märkte; die
Menschen mit niedrigem Einkommen, insbesondere diejenigen in den ländlichen Gebieten führte
Taobao digitale ländliche Dienstleistungszentren (ländliche Dienstleistungszentren) ein, in denen
sich die Dorfbewohner daran gewöhnen können, online einzukaufen und Rechnungen zu
bezahlen sowie auf Taobao gekaufte Artikel abzuholen.
Alibaba stellt Computer zur Verfügung und bildet Dorfbewohner aus, um als seine Vertreter in
den Zentren zu fungieren, die sich oft in Convenience-Stores befinden. Mit den Fortschritten der
Fintechs wird der Zugang zu Produkten und Finanzdienstleistungen leichter denn je.
Gewährleistung gleicher Wettbewerbsbedingungen für Verbraucher, die auf dem Land leben
Standorte oder Regionen ohne die Strukturen einer städtischen Wirtschaft sind für die
vollständige finanzielle und soziale Eingliederung von entscheidender Bedeutung.
II

5. Serbian Version
Апстрактан
У ери техничког напретка, где се све врти око света „е“, дигитализација је раширила крила
по свим сферама живота. Огромна употреба дигиталних уређаја и све већа зависност од
њих јасно говоре да је дигитализација потреба сата и има велики потенцијал да
револуционише параметре друштвено-економског раста, стварајући симбиотски однос са
свеобухватним растом и одрживим развојем. Постао је тај важан инструмент који је
поједноставио функционисање и процесе у различитим областима као што су
администрација, регулатива, планирање и функционисање друштвено-економског домена
на крају обогаћивањем квалитета живота. Ова особина дигиталног доба резултира
одрживим развојем, јер када су друштва дигитално оснажена, она су свеснија, повезана,
усклађена, сарађују и садржајна су. сопствени раст и заузврат раде заједно као одговорни
ресурси за будуће изгледе нације.Тх Сврха ове студије је дефинисана као истраживање
доприноса дигитализације (улога дигиталне технологије) у руралном развоју заједнице и
банкарству са критичким освртом на преглед Ант Финанциал и студије случаја Алибабе
која даје преглед ФинТецх-а заснован на дигиталној технологији.
Ант Финанциал, највећа кинеска ФинТецх компанија у настајању, намјерава
револуционирати кинеску финансијску мрежу, укључујући плаћања, управљање
богатством и зајмове. појединци са ниским приходима, посебно они у руралним
подручјима. Ант Финанциал је искористила Таобао-ову платформу, заједно са
Алибабином руралном Таобао стратегијом, како би дала зајмове и помогла
традиционалним пољопривредним предузећима да отворе продавнице на ТаоБао.Алибаба
такође увео Таобао дигиталне сеоске сервисне центре (сеоске услужне центре), где се
сељани могу навикнути на куповину и плаћање рачуна на мрежи, као и на преузимање
предмета које су купили на Таобаоу.
Алибаба обезбеђује рачунаре и обучава сељане да служе као њени представници у
центрима, који су често у продавницама. Уз напредак Финтецх -а, приступ производима и
финансијским услугама постаје приступачнији него икад. Обезбеђивање једнаких услова
за потрошаче који живе у руралним подручјима локације или региони без структура
урбане економије од виталног су значаја за постизање потпуне финансијске и социјалне
укључености.
II

6. Turkish Version
Soyut
Her şeyin "e" dünyası etrafında döndüğü teknik ilerleme çağında, dijitalleşme hayatın her
alanına kanatlarını açmış durumda. her şey dahil büyüme ve sürdürülebilir kalkınma ile
simbiyotik bir ilişki kurarak sosyal-ekonomik büyüme parametrelerinde devrim yaratma
potansiyeline sahiptir. nihayetinde yaşam kalitesini zenginleştirerek sosyo-ekonomik
alanın planlanması ve işletilmesi. Dijital çağın bu özelliği, toplumların dijital olarak
güçlendirildiği, toplumlarına karşı daha Bilinçli, Bağlantılı, Uyumlu, İşbirlikçi ve İçerikli
oldukları için sürdürülebilir kalkınma ile sonuçlanmaktadır. kendi büyümesi ve
karşılığında ulusun gelecekteki beklentileri için sorumlu kaynaklar olarak birlikte çalışırlar.
Bu çalışmanın amacı, Ant Financial ve Alibaba'nın FinTech- dijital teknolojiye dayalıdır.
Çin'in yapım aşamasındaki en büyük FinTech şirketi olan Ant Financial, ödeme, varlık
yönetimi ve krediler dahil olmak üzere Çin'in finans ağında devrim yaratmaya hazırlanıyor.
Büyük Çin bankalarının yetersiz hizmet aldığı pazarlara odaklanıyor; özellikle kırsal
alanlardaki düşük gelirli bireyler. Ant Financial, kredi vermek ve geleneksel tarım
işletmelerinin TaoBao'da dükkanlar kurmasına yardımcı olmak için Alibaba'nın kırsal
Taobao Stratejisi ile birlikte Taobao'nun platformundan yararlandı.Alibaba ayrıca
köylülerin çevrimiçi satın alma ve fatura ödemenin yanı sıra Taobao'dan satın aldıkları
ürünleri almaya alışabilecekleri Taobao dijital kırsal hizmet merkezlerini (kırsal hizmet
merkezleri) tanıttı.
Alibaba, genellikle marketlerde bulunan merkezlerde temsilcileri olarak hizmet etmeleri
için köylülere bilgisayar sağlar ve eğitir. Fintech'teki gelişmelerle, ürünlere ve finansal
hizmetlere erişim her zamankinden daha erişilebilir hale geliyor. Kırsalda yaşayan
tüketiciler için eşit bir oyun alanı sağlamak bir kentsel ekonominin yapılarının olmadığı
yerler veya bölgeler, tam finansal ve sosyal içermenin sağlanmasında hayati öneme
sahiptir.
II

7. Shtëpia Botuese “ATUNIS”

8. ACKNOWLEDGEMENTS
First and foremost, I thank God.
I am highly indebted to my technical editor(censor), post graduate researcher prof.Ali
Hussein, Renmin University of China in Beijing,China and Contennial College ,Toronto,
Canada. for his teachings which largely helped me to finish my book.
III

9. DEDICATION
This work is for:
The memory of my parents
And to both my wife and sisters,
The glory of God the Almighty
IV

10. LIST OF ABBREVIATIONS
DT: Digital Technology
CD: Community Development
FINTECH: Financial Technology Service
ALIBABA: Chinese multinational technology company specializing in e-commerce
ICT: Information and Communication Technology
ADCs: Advanced Countires
EU: European Unioin
DH: Digital Hubs
InfoDev: Information for Development Program
V

11. Page | 1
Table of Contents
Title Page……………………………………………………………………………………….....I
Abstract….……...………………………………………………………………………………...II
Acknowledgement………………………………………………………………………..……...III
Dedication...………………………………………………………………………………...……IV
List of Abbreviations……………………………………………………………………………..V
CHAPTER ONE: General Introducation……………………………………………………….....4
1.1 Background……………………………………………………………………………………5
1.2 Rationale………………………………………………………………………………………7
1.3. Book of objectives and questions……………..……………………………………………...9
1.3.1 Relevance of the book…..……………………………………………………...…………..10
1.3.2 Book structure…………………………………………………………………..………….13
1.4 Summery……………………………………………………………………………………..14
CHAPTER TWO: Literature Review……………………………………………………………15
2.1.Digitalization………………………………………………………..………………………..15
2.1.2 Concept of Digitalization.......…………………………………………………….………..16
2.2 Community Development and Digitalization………………………………………………..18
2.2.1.Impact of Digitalization on Community Development……………………………………20
2.3 Concept of Rural Digital Hubs……………………………………………………………...22

12. Page | 2
Table of Contents
2.3.1 Digital Hubs Focusing on Business………………………………………………………..24
2.3.2 Digital Hubs with Community Focus and Combined Forms……………………………...27
2.4 Rural Development and Digitalization ……………………………………………………...29
2.4.1 Introduction………………………………………………………………………………...29
2.4.2 Usage of Digital Technology to Benefit Rural Development……………………………...31
2.4.3 Digital Technology in Education…………………………………………………………..32
2.4.4 Digital Technology in Healthcare………………………………………………………….33
2.4.5 Digital Technology in Agriculture…………………………………………………………34
2.4.6 Digital Technology in Banking…………………………………………………………….35
2.5 Fintech and Rural Development……………………………………………………………..36
2.5.1 Defination………………………………………………………………………………….36
2.5.2 Implementation of Financial Digital Service………………………………………………39
CHAPTER THREE: Case Study……………………..………………………………………….43
3.1 Introduction…………………………………………………………………………………..43
3.1.2 The historical trajectory of rural finance in China…………………………………………44
3.2 “Hollowed Villages”………………………………………………………………………………...50
3.2.1 The “Left-Behind” Children………………………………………………………………………...52

13. Page | 3
Table of Contents
3.3 Alibaba`s Digital Financial Push……………………………………………………………………..54
3.3.1 Alibaba’s Rural Taobao Strategy………………………………………………………………………57
3.4 Taobao Rural Service Centres……………………………………………………………………………58
3.4.1 Taobao Villages…………………………………………………………………………………….61
3.5 Digital Financial Services and Fintech Platforms………………………………………………………….63
3.5.1 Ant Financial Serveries Group………………………………………………………………………..64
3.6 Technology Behind the Services…………………………………………………………………………….67
3.6.1 Tencent Holdings and WeBank………………………………………………………………………..70
CHAPTER FOUR: Discussion……...……..…………………………………………………………………72
4.1 Impact of rural fintech on community and banking in China………………………………..72
CHAPTER FIVE: Conclusion……..…………………………………………………………….77
5.1 Conclusion…………………………………………………………………………………...77
References……………………………………………………………………………………….78
Biography..………………………………………………………………………………………79
Censorship of Book……...………………………………………………………………………80

14. Page | 4
CHAPTER ONE : INTRODUCTION
“It is past time to put to rest the sterile debate over whether new technologies are a luxury or a
necessity for the poor. The real challenge now is for all of us to work together to identify and
accelerate the real benefits of technological advances. ”1
1
M. Malloch Brown, UNDP Administrator (Harris 2002:1)

15. Page | 5
1.1 BACKGROUND
The information revolution wrought by the convergence of information and communication
technologies (ICTs) has sparked a gamut of arguments concerning the role of these technologies
in effecting socio-economic development. Advocates perceive that ICTs encapsulate the ability
to drastically break physical boundaries, freeze distance and time differences, lower transaction
costs, and thus expand markets (OECF 1996; Avgerou 1998; Mansell 1999; Chowdhury 2000;
Jeffrey 2002; Molla 2005). Most interestingly, they see the new technologies as a weapon of
mass poverty eradication and an emancipator of the marginalised in society through the
provision of information (Caspary 2002; Krishna and Madon 2003; McNamara 2003; IDRC
2003a). On the other hand, technological pessimists label the forgoing techno-optimistic
expressions as a hype (Heeks 1999a; Chapman et al. 2003). Citing factors such as the marketing
of pornographic products on the internet, the perpetration of organized corporate crimes, job
losses, abuse of information rights and the erosion of indigenous cultural heritage to back their
claims (Obijiofor 1998), they perceive that the emergence and diffusion of ICTs would worsen
the plight of the ordinary person in society (Morales-Gomez and Melesse 1998).
What then is the way forward? In any case, both sides may have a point. However, it is important
to note that it is not the technology per se, but the way it is being conceptualised against the
realities of different contexts that is the problem2
. As Noeleen Heyzer of the UN Development
Fund for women puts it, “there are tremendous opportunities if we know how to shape this
technology and if we know how to intervene” (IDRC 2003a). The problem, however, lies in
knowing how to shape or intervene.
On the other hand, a dualistic disparity often referred to as the digital divide is being created
between countries or individuals who are capable of attracting and exploiting the opportunities
inherent in ICT and those who are not3
. Various layers of this dualism exist with majority of
people sandwiched beneath or cut off from the ,global village". At the international level, there is
a gulf between the developed or otherwise advanced countries (ADCs) and the developing
countries (DCs). At the national level, the discrepancy is normally between the urban rich and
the rural poor. This implies that the people living in rural communities in DCs are the most
disadvantaged of this information age. Others further perceive the divide on the basis of gender,
age and ethnicity4
), meaning that there could be further denials in these communities.
2
(Chandler 2000; Curtain 2003; Soeftestad and Sein 2003)
3
(Mansell 1999; Benjamin 2001; McNamara 2003, Arun et al 2004, Economist 2005)
4
(Westrup and Al- Jaghoub 2005

16. Page | 6
1.1 BACKGROUND
Perhaps what makes the above problem more serious is that it tends to escalate the already
existing socio-economic gap between the rich and the poor as the technologies have been
associated elsewhere with the expansion of the wealth of nations and individuals (Castells 1998;
OECD 2003).
Despite doubts in generalising this claim (Heeks 1999b; Heeks and Kenny 2002), in particular
there is a need to examine how the power of ICTs is appropriately leveraged by the rural poor for
their own benefit as well as contributing to the socio-economic development of their nations and
the world at large. The fact is that apart from the rural poor being the most excluded of the global
village enhanced by ICTs, they form a good portion of DCs" population (Harris 2002,
McNamara 2003; HDR 2004). It therefore means that it may be highly impossible for these
countries to make substantial gains in deploying these technologies for economic development
while sidelining the rural folks (Annam 2002).
Accordingly, some countries and development organisations have begun implementing ICT
initiatives in rural areas in DCs (McNamara 2003). But these still remain experimental in nature,
with the problem of sustainability as a major concern (Benjamin 2001; Arunachalam 2002;
Hearn et al 2005). The positive impacts of these projects are yet to be substantiated and it is not
clear where and when appropriate implementation models will emerge for replication to other
parts of the developing world which are in pressing need of information for livelihoods
(Benjamin 2001; McNamara 2003; Gurstein 2005). There is an alarming lack of empirical
analyses of actual experiences on the local appropriation of ICTs and their contribution to poor
people's economic and social livelihoods to help shape new implementation policies and
strategies (Baak and Heeks 1998; Findings 2001; World Bank 2002b; Rothenberg-Aalami and
Pal 2005).

17. Page | 7
1.2 RATIONALE
The study tries to assess and explore the impact of digitalization on Community Development
and banking in rural areas.Considering the community development perspective, the study
focused on explaining the impacts of Fintech in rural development and banking in China.Study is
focused on Alibaba`s taobao villages(rural taobao service center/digital hub for business
service),to where, alibaba has helped rural areas build the infrastructure of e-business, including
trade, logstics, digital payment and financing, cloud computing and so on.
Community development is an often “nebulous term defined by many conceptual and practical
characterizations”. (Summer, 1986: 347-371) The participation of larger and growing number of
local communities engaged in community development is quite obvious in current era. The
existing interest in CD has resulted from the field’s proven capacity to provide proper solution to
community issues and problems. (Wlazer, 2010) CD initially focused on poverty alleviation at
the initial stage but however, as development thinking expanded, the focus shifted from poverty
reduction to putting emphasis on social transformation. The basic and standard theory of CD
clearly states “people have the right to participate in decisions that have an effect upon their well-
being”. (Litterell, 1976: 129-136) The literatures further argue that CD happens only whenlocal
people believe that their participation in decision making to initiate collective actions can bring
socio-economic and environmental changes to their lives. The CD process, moreover,
emphasizes on the importance of “empowerment, equality, social justice, participation and
representation” in decision making process on issues affecting the lives of people in rural
communities.
In the light of the aforesaid concept, any change is hardly possible until an effective mechanism is
introduced to support local community to make it happen. It is the CD approach which
introduced to the world the idea of facilitating the development process in order to raise peoples’
living standard. In order to achieve this, five basic resources available with people at community
level needs to be given attention to. These resources include “physical, financial, human, social
and natural” (Scoones 2009:7) resources. The concept of livelihood refers to these as means for
“gaining living”. In addition, the proper utilization of these resources, policies, institutions and
organizations are needed to flourish their capabilities and support them in initiating appropriate
development interventions (Scoones 2009:1-6).

18. Page | 8
1.2 RATIONALE
Literatures argue that through community development local people are empowered to work on
their own social, economical, environmental and political issues with reference to their
prioritized agendas to improve quality and standard of their life. Nowdays impact of innovative
technology in CD,it is contributing to the rural livelihood and has gained numerous success too.

19. Page | 9
1.3 BOOK OBJECTIVES AND QUESTIONS
The main objective of this book is to uncover the impact of digitalization in which ICT initiatives
contribute to the sustainable livelihoods (SL) of rural communities in China. The book seeks to
accomplish this by answering the following questions through a literature review and analyses of
case study of such undertakings:
What impact has these initiatives played in rural livelihoods in rural areas in China?

20. Page | 10
1.3.1 RELEVANCE OF THE BOOK
By answering the above questions, it is hoped that this work will contribute to the body of
knowledge by increasing the understanding of what is impact of ICT in rural dwellers actually in
their livelihoods. It will unearth some important benefits of current ICT initiatives in this domain
and help to re-orient the perceptions and actions of project sponsors, policy makers and
researchers towards more holistic and sustainable approaches that empower the poor to have a
better and lasting understanding and control of their lives through ICT (Ramirez and Richardson
2005). It is also hoped to create awareness for people in rural DCs to champion their own
development goals by grabbing the opportunities being created by the new technologies.

21. Page | 11
1.3.3 BOOK STRUCTURE
The book is structured in six major parts as follows:
Here in chapter 1, the motivations of this book and how this work can make a contribution to the
body of knowledge are presented.
Chapter 2 sets the context of this book, reviewing the concepts of digitalization and of rural
development.
Chapter 3 then presents the relationship between digitalization,community and rural
development. It first examines the nature of rural ICT initiatives and proceeds to set ICT in
perspective with the SL framework.
In chapter 4, evidence from the field is presented the case study of Taobao Village and analyised
using the Alibab`s taobao digital hubs to improve livehood of villagers.
Chapter 5 draws lesssons from the analyses in chapter 4 to discuss impact of Fintech`s
implementation in rural areas.
Finnally chapter 6 draws conclusion about impact of digital technology on both community and
rural development.

22. Page | 12
1.4 SUMMARY
This chapter has provided the background and objectives of the research. It showed that there is
the need for more research on the analysis of the appropriation of ICTs by local communities to
help shape ways in which the technology can be leveraged for the benefit of rural communities.
It also outlined the questions and methodology for such analysis and concluded with a
presentation on how this dissertation is structured.

23. Page | 13
CHAPTER TWO: DIGITALIZATION
2.1 Introduction
The term `` digitalization`` was first introduced in 1995 by the american computer scientist
Nicholas Negroponte,Messachusetts Institute of technology(MIT), although the actual process of
digitalization ,at least in the economy, began long ago.Digitalization as a term replaced
informatization and computerization which had mainly been used in texts about the use of
computer technologies, computers and information technologies to solve certain problems.Great
opportunities of digital representation of information have led to the fact that digitalization forms
integral technological environments of `` dwelling`` (ecosystems,platforms) within which the
user can create for himself a friendly environment (technological, instrumental,
methodical,documentary, partner,etc.) necessary for him to solve even whole class of tasks.5
Currently, the term digitlization is used in a narrow and broad sense.Digitalization in a narrow
sense is understood as transformation of information into digital form, which in most case leads
to cost reducation ,new opportunies etc.
5
(Sviridenko,2017).

24. Page | 14
CHAPTER TWO: THE CONCEPT OF DIGITALIZATION
2.1.2 The concept of digitalization
Digitalization reflects the adoption of digital technologies in business and society as well as the
associated changes in the connectivity of individuals, organizations,and objects (Gartner 2016;
Gimpel et al. 2018). While digitization covers the technical process of converting analog
signals into a digital form, the manifold sociotechnical phenomena and processes of adopting
and using digital technologies in broader individual, organizational, and societal contexts are
commonly referred to as digitalization (Legner et al. 2017).
The key driver of digitalization are digital technologies. Due to considerable investments in
technological progress, various digital technologies are on the market. Thereby, an ever-
faster commoditization and time-to-market can be observed. For example, early hardware-
heavy information and communication technologies such as the telephone required 75 years
to reach 100 million users, whereas lightweight applications such as Instagram achieved the
same coverage in little more than two years (Statista 2017). Digital technologies include
both emerging technologies such as the Internet of Things (IoT) or blockchain and more
established technologies such as social media, mobile computing, advanced analytics, and
cloud computing (SMAC) (Fitzgerald et al. 2014; Gartner 2017).
Loebbecke (2006) refers to digital technologies as all technologies for the creation, processing,
transmission, and use of digital goods. Further, Yoo et al. (2010) argue that digital technologies
differ from earlier technologies in three characteristics: re-programmability, which separates the
functional logic of a device from its physical embodiment, homogenization of data, which
allows for storing, transmitting, and processing digital content using the same devices and
networks, and a self-referential nature yielding positive network externalities. Digital
technologies can be further classified with respect to whether they involve humans actively
or passively, how they treat data, whether their input and output is purely digital or can also be
physical, or whether they serve infrastructural or application-oriented purposes (Berger et
al. 2018). In sum, digital technologies enable platforms, autonomous products, sensor-based
data collection, analytical insight generation, as well as analytical and augmented interaction.

25. Page | 15
CHAPTER TWO: THE CONCEPT OF DIGITALIZATION
Based on advances in digital technologies, digitalization impacts business and society. Digital
technologies enable innovative business models such as the platform-based models of
well-known companies including AirBnB, Uber, or Facebook, or decentral models enabled by
blockchain and 3D printing (Fridgen et al. 2018; Goodwin 2015). Digitalization also changes
industry structures (Gimpel et al. 2018): reduced entry barriers make technology-savvy start-ups
flourish and digital giants such as Google or Apple push forward to manifold sectors. Regarding
the IoT, for example, 50 billion smart devices are expected to be connected to the Internet by
2020, having an economic impact of $7 trillion (Macaulay et al. 2015; Wortmann and Flüchter
2015). Further, the volume of available data is known to double every three years (Henke et al.
2016), and insights-driven businesses are predicted to take away $1.2 trillion per year from less-
informed competitors by 2020 (McCormick et al. 2016). Digitalization also empowers customers
and impacts our private lives. Today, more people have access to cellphones than to toilets, and
one in five people has an active Facebook account (Halleck 2015; UN International
Telecommunication 2014). In the digital age, wowing customers is more critical – and more
challenging – than before, independent from an organization’s position in the value network, as
customers decide themselves how to interact organizations (Hosseini et al. 2018). Likewise,
employee behavior and thought patterns evolve towards a new future of work, calling for
new work and collaboration models (Brynjolfsson & McAfee 2014).
Digitalization, however, is neither a new phenomenon nor will it be the final evolutionary
stage of information and communication technology (Porter and Heppelmann 2014).

26. Page | 16
CHAPTER TWO: COMMUNITY DEVELOPMENT AND DIGITALIZATION
2.2.1 Community and rural development
Community development has been described as a conscious technique or process to solve social
change problems; a process that enables communities to “collectively confront and act on their
common values and problems” (Lotz, 1977, p.16). Hamilton (1992) defined community
development as a planned and organized effort to assist individuals to acquire the attitudes,
skills, and concepts required for their democratic participation in the effective solution of as wide
a range of community improvement problems as possible in the order of priority determined by
their increasing levels of competence. (p. 29)
Moreland and Lovett (1997) see community development as a learning process that involves
people in experiences from which they will learn ways of enhancing their capacity for self-
directed activity and destiny. From a social interventionist or animation sociale view,
community development can be described as “the process of animation that gives rise to a
process of self-education, the essence of which is a heightening of the capacity for self-
determination.6
Lotz (1977) identified two types of community -- the vertical or geographical one (street,
neighbourhood, or reserve), and the horizontal or non-geographical one (teachers, farmers, and
social classes). The central concept of community implies territoriality or constituency, which
usually leads to the establishment of boundaries and the monitoring of who crosses them. It is
necessary for a community to acknowledge its problems, and need for assistance, before an
external agency attempts to ‘come in’ and start a community development process; otherwise,
the development worker could be perceived as an “unwarranted intruder” (p. 9). Lotz also
provided a definition of development, as A...an unfolding, a growth from within, an organic
process that involves a fuller and richer working out of what has already been started...@(p. 9).
6
(Draper, 1971, p. 160).

27. Page | 17
CHAPTER TWO: COMMUNITY DEVELOPMENT AND DIGITALIZATION
The community development process engages in politics, leadership, power attainment,
group dynamics, learning, and social change; thus, it is “multidisciplinary and draws from
political science, sociology, social psychology, social work, and adult education” 7
Some of the
characteristics of the community development process are as follows: community member
involvement in problem-solving and decision-making; a learning process that is geared towards a
change in behaviour and requires learning by doing; participants who increase their competence
and capacity to manage their own affairs; and a grass-roots approach to social action8
. The
success of the community development process can be judged in terms of the community=s
capacity building, group development and empowerment, and the achievement of social,
economic, cultural and environmental targets and objects.9
The United Nations defines community development as "a process where community members
come together to take collective action and generate solutions to common problems."[
It is a
broad concept, applied to the practices of civic leaders, activists, involved citizens, and
professionals to improve various aspects of communities, typically aiming to build stronger and
more resilient local communities.
7
(Hamilton, 1992, p. 33)
8
(Draper, 1971)
9
(Lovett, 1997)

28. Page | 18
CHAPTER TWO: IMPACT OF DIGITALIZATION ON COMMUNITY DEVELOPMENT
2.2.1 Impact of digitalization on community development
Rural communities worldly are dealing with diverse challenges. As Wilson (2010) indicated,
many places in rural regions find themselves at a turning point, due to changes that these
communities often have no direct influence over as these are driven by forces beyond the
regional and even national levels. Among others, McManus et al. (2012) noted that many rural
places in developed countries are facing rural decline caused by sectoral change, which in turn is
leading to smaller numbers of jobs. In this context it is important to consider that areas facing
population decline in particular struggle with the limited availability of financial resources
(Raugze, Daly, & van Herwijnen 2017)
It was suggested that digital technologies can assist rural places to become better connected and
thereby overcome the disadvantages of their remoteness (Townsend, Sathiaseelan, Fairhurst, &
Wallace, 2013). Nevertheless, Next Generation Access is still lacking in many rural regions
throughout Europe (Ashmore, 2015; Salemink & Strijker, 2018). This is not only an
infrastructural problem, as also the skills and motivation required to make use of Next
Generation Access are not always guaranteed in rural areas (European Network, for Rural
Development [ENRD], 2017a; Lameijer, Mueller, & Hage 2017). To tackle the connectivity, and
especially the adoption problems, some places have implemented rural digital hubs (ENRD
2017a). Rural digital hubs have not yet received a great deal of attention in the academic
literature, a clear conceptualization is still lacking and generally, adoption studies are less
available compared to information and communication technology (ICT) provision studies
(Salemink, Strijker, & Bosworth, 2017). However, considering the challenges that rural places
are facing today, it is important to study this issue in greater depth. The ENRD (European
Network for Rural Development) expects that a rural digital hub will have broad benefits for
local communities. Not only do they take into account the benefits associated with digitisation—
for example, improving the digital literacy of local inhabitants and local businesses or providing
fast broadband connections—but the ENRD also stated that rural digital hubs can strengthen the
local community and attract new residents or businesses. Further, it was suggested that these
improve conditions for economic activity, such as networking possibilities (ENRD, 2017b). Such
possible benefits were also noted by Ashmore and Price (2019), and Roberts, Anderson, Skerratt,
and Farrington (2017) mentioned ‘community technology hubs’ as possible training places for
digital inclusion.

29. Page | 19
CHAPTER TWO: COMMUNITY DEVELOPMENT AND DIGITALIZATION
It was suggested that digital technologies can assist rural places to become better connected and
thereby overcome the disadvantages of their remoteness (Townsend, Sathiaseelan, Fairhurst, &
Wallace, 2013). Nevertheless, Next Generation Access is still lacking in many rural regions
throughout Europe (Ashmore, 2015; Salemink & Strijker, 2018). This is not only an
infrastructural problem, as also the skills and motivation required to make use of Next
Generation Access are not always guaranteed in rural areas (European Network, for Rural
Development [ENRD], 2017a; Lameijer, Mueller, & Hage 2017).
To tackle the connectivity, and especially the adoption problems, some places have implemented
rural digital hubs (ENRD 2017a). Rural digital hubs have not yet received a great deal of
attention in the academic literature, a clear conceptualization is still lacking and generally,
adoption studies are less available compared to information and communication technology
(ICT) provision studies (Salemink, Strijker, & Bosworth, 2017). However, considering the
challenges that rural places are facing today, it is important to study this issue in greater depth.
The ENRD (European Network for Rural Development) expects that a rural digital hub will have
broad benefits for local communities.
Not only do they take into account the benefits associated with digitisation—for example,
improving the digital literacy of local inhabitants and local businesses or providing fast
broadband connections—but the ENRD also stated that rural digital hubs can strengthen the local
community and attract new residents or businesses. Further, it was suggested that these improve
conditions for economic activity, such as networking possibilities (ENRD, 2017b). Such possible
benefits were also noted by Ashmore and Price (2019), and Roberts, Anderson, Skerratt, and
Farrington (2017) mentioned ‘community technology hubs’ as possible training places for digital
inclusion.

30. Page | 20
CHAPTER TWO: CONCEPT OF RURAL DIGITAL HUBS
2.3 Conceptualization of Rural Digital Hubs Types
Digital hubs are physical spaces with access to superfast broadband alongside community and
business focussed services. They provide digital connectivity, support the development of digital
skills and encourage the use of emergent digital technologies. Digital hubs aim to enhance the
local digital environment and can be available to the public, businesses, or local authorities, or a
combination. Digital hubs can target digital awareness, help tackle digital competency gaps or
simply provide a much needed superfast broadband connection in rural areas.
The term ‘hub’ is used widely and concerns various fields. Before defining it in relation to
digitalisation, we will look at its general meaning. In urban studies, for example, it might refer to
cities. Derudder, Conventz, Thierstein, and Witlox (2014) described ‘hub cities’ as
interconnected and as ‘knowledge hubs’. Neal (2014) spoke of ‘hub cities’ as nodes and focal
points of networks in an urban context. The economic advantage of such cities is stressed, with
the city being described as a ‘hub of activities’ (Neal, 2014). More generally speaking, a ‘hub’
may describe a geographical place (Ramirez, 2007). However, hubs are not necessarily physical
entities: an e-hub stands for a business-to-business web market, which brings providers and
customers together (Kaplan & Sawhney, 2000). Further, households likely host a hub. Since
many homes are equipped with various ICT equipment nowadays, these can also be described as
‘infrastructural hubs’ (Hjorthol & Gripsrud, 2009). Thus, although the term is used in various
contexts, it always describes a central point or place where the main action occurs. A further
essential topic associated with hubs is the flows and spokes, as the example of transport hubs
suggests (Bowen, 2012).
Concerning transport hubs, Pettit and Beresford (2009) introduced the transformation of ports
from ‘gateways’ into ‘logistic hubs’ and the increasing focus on value addition. We argue that
flows and value addition are important aspects of rural digital hubs. People coming to the hub
can be regarded as flow, receiving additional services at the respective facility. In the academic
context, the term ‘rural digital hub’ itself has rarely been discussed. Instead, other terms have
been used for various hub forms, most of which are not specifically applied in the context of
rural areas. These will be introduced in the following subsections.

31. Page | 21
CHAPTER TWO: CONCEPT OF RURAL DIGITAL HUBS
The ENRD published a definition of rural digital hubs, which we have taken as a starting point
for our review of the literature: Rural digital hubs offer physical spaces with fast, reliable internet
access that provide a whole range of business and community support services in rural areas. The
activities offered by digital hubs depend both on whether their target is businesses, the
community, or both and whether they provide space or also specific services to their target
groups. Most digital hubs cannot be categorised within a single category of activity, but carry out
a combination of these. (ENRD, 2017a) Nevertheless, we think it is of importance to either
verify, or maybe adapt, this definition depending on what kind of rural digital hubs exist and
what their characteristics are. This can help policy makers to differentiate approaches, especially
in the light of a European policy agenda increasingly focusing on digitalisation.

32. Page | 22
CHAPTER TWO: DIGITAL HUBS FOCUSING ON BUSINESS
2.3.1 Digital hubs focusing on businesses
We have identified several forms fulfilling the description of a rural digital hub focusing on
businesses. One of these is ‘rural enterprise hubs’. With their assistance, businesses shall be
supported and new businesses developed. Almost all case studies of rural enterprise hubs by
Cowie, Thompson, and Rowe (n.d.) offer broadband, fitting to the rural digital hub concept.
Mostly these provide several services, for example, (a) shared amenity space, (b) office space,
(c) support, and (d) networking opportunities. While these spaces are not specifically assigned to
rural areas, ‘co-working spaces’ can also be classified as one of the previously described
enterprise hubs. According to Fuzi (2015), co-working spaces are designed for entrepreneurs to
share with others. For example, these can aim at sharing technologies, exchanging information,
seeking cooperation, or finding support.
Various facilities may be offered and support in a variety of forms may be given. As one study
from Finland suggested, co-working spaces can be further differentiated into subcategories such
as ‘third places’ and ‘incubators’. Incubators are workspaces that are shared by a group of people
aiming at the establishment of business activities while third places are used by the public at
large. These usually offer other services, for example, a cafeteria (Kojo & Nenonen, 2016).10
Writing about co-working spaces in a rural Swiss area, Bürgin and Mayer (2020) mentioned that
they were also declared as ‘mountain hubs’. A similar term used by Buksh and Davidson (2013)
11
is ‘digital work hubs’. These are presented as a combination of co-working and teleworking
and as places which can assist regional agglomeration and reduce economic differences.
Digital work hubs are largely designed for people normally commuting to work or working at
home. A special form of enterprise hubs is ‘creative hubs’: These are defined as places primarily
offering business support to creative small and medium-sized enterprises (SMEs) (Virani, 2015).
Further specialised, ‘technology and innovation hubs’ can be a kind of co-working space for
people working in the digital technology sector to collaborate there. Another name can be ‘tech
hub’ or ‘ICT hub’. Various services can be offered, also incubation or community building can
take place there (Jiménez & Zheng, 2018).12
10
11
12

33. Page | 23
CHAPTER TWO: DIGITAL HUBS FOCUSING ON BUSINESS
Further focused on digital technology, ‘Digital Innovation Hubs (DIHs)’ have digital hub already
in the name. In a communication on policy measures, the European Commission explained that
DIHs should provide access to the newest technological developments for all industrial sectors
within Europe and promote innovation (European Commission, 2016b).
As such, a DIH is defined as a place for businesses to make contact with the latest technological
developments (European Innovation Partnership [EIP]-AGRI 2017), (European Network for
Rural Development [ENRD], 2017c). One special variant of DIHs are those for agriculture.
These shall help the farming sector to take advantage of digital developments by providing the
necessary know-how and testing possibilities (EIP-AGRI 2017). In conclusion, we can
distinguish hubs focusing on business activities in general and some stressing the focus on
technological–digital innovation, such as the DIHs and technology and innovation hubs. In the
following chapters, we name these two types ‘enterprise hubs’ and ‘innovation hubs’. Innovation
hubs can thereby, for example, include technology demonstrations. This means that we also label
hubs focused on training businesses in new digital technologies as innovation hubs.

34. Page | 24
CHAPTER TWO: DIGITAL HUBS WITH COMMUNITY FOCUS AND COMBINED
2.3.2 Digital hubs with community focus and combined forms.
A Public Internet Access Point (PIAP) has its main focus on ICT accessibility and provision to
the community. These are often provided in rural areas and aim at the most underprivileged
(Arifoǧlu, Afacan, & Er, 2011). There are many terms for a PIAP, such as (a) telecentre, (b)
digital (community) centre, (c) community technology or community multipurpose centre, and
(d) telecottage (e.g., Hayden & Ball-Rokeach, 2007). PIAPs aim to decrease the digital divide
(Arifoglu, Afacan, & Er, 2013) by providing hardware to gain access to the internet and other
equipment such as printers. London, Pastor, Servon, Rosner, and Wallace (2010) also noted that
the services offered by a community technology centre may be very broad. These can range from
aiming at developing basic skills to providing advanced training.
The European Telecommunications Standards Institute considered every public facility that
offers internet access to be a PIAP. Internet or cyber cafes are other types of PIAP. These may be
commercially or publicly provided and can be further differentiated concerning their services
(Institute of European Telecommunications Standards, 2008). Examples of such services include
library facilities, computer training and e-government services (Arifoǧlu, Afacan, & Er, 2011). It
was reported that these might be operated by NGOs and be established at locations already
serving the community, such as a library or school, village hall, other government offices, or
even rural internet cafes, and thus not only as a single-purpose facility (Arifoglu, Afacan, & Er,
2013; Lægran, 2002; Huggins & Izushi, 2002).
That libraries can indeed be places to foster digital literacy, for example by offering learning
events such as maker parties, was also noted by Nygren (2014). Libraries were described as
crucial lifelong learning community hubs and can facilitate 21st-century skills learning.

35. Page | 25
CHAPTER TWO: DIGITAL HUBS WITH COMMUNITY FOCUS AND COMBINED
Based on these literature findings, we distinguish places primarily offering internet access—
‘PIAPs’—and ‘training hubs’—providing digital literacy training over a longer period. In this
study, however, we exclude places offering WiFi to the public only from the PIAP definition
Table 1. Rural Digital Hub Types13
Type of hub Rural digital hubs for
business
Rural digital hub for the
community
Rural digital hub for
business and the
community
Subcategory Enterprise hubs(co-
working hubs etc..)
Innovation hubs
PIAPs(and similar
terms)
Training hubs
Fab labs
Combination of types
13
Table rural digital hub

36. Page | 26
CHAPTER TWO: RURAL DEVELOPMENT AND DIGITALIZATION
2.4 Introduction
Rural Development is the process of improving the quality of life and economic well-being of
people living in rural areas, often relatively isolated and sparsely populated areas.
Rural Development has traditionally centered on the exploitation of land-intensive natural
resources such as agriculture and forestry. However, changes in global production networks and
increased urbanization have changed the character of rural areas. Increasingly tourism, niche
manufacturers, and recreation have replaced resource extraction and agriculture as dominant
economic drivers.[13]
The need for rural communities to approach development from a wider
perspective has created more focus on a broad range of development goals rather than merely
creating incentive for agricultural or resource based businesses. Education, entrepreneurship,
physical infrastructure, and social infrastructure all play an important role in developing rural
regions.[14]
Rural development is also characterized by its emphasis on locally produced
economic development strategies.[15]
In contrast to urban regions, which have many similarities,
rural areas are highly distinctive from one another. For this reason there are a large variety of
rural development approaches used globally.[16]
Rural development is a comprehensive term. It essentially focuses on action for the development
of areas outside the mainstream urban economic system.

37. Page | 27
CHAPTER TWO: RURAL DEVELOPMENT AND DIGITALIZATION
Digitization of rural areas and financial service in modern environment are emphasized for
several reasons (economic, demographic, environmental, etc.). In parallel, some authors have
identified a growing interest in this area (Jeremić & Brankov, 2020; Bramley & Ouzman, 2019;
Herrmann et al., 2019; Visvizi et al., 2019; Ristić & Barbarić, 2019; Despotović et al., 2019;
Veselinović & Veselinović, 2019; Haider et al., 2018; Yang et al., 2018; Raju et al., 2016; Bright
еt al., 2016; Hameed, et al., 2016; Kaur, 2016; Butler et al., 2006)Considering that the
application of technological innovations in financial service and rural development is gaining
significant attention by both the theoretical framework and practice in many countries.
Digitization of rural areas implies ICT-based development of rural areas, i.e., it focuses on the
use of digital technology and information. In the process of introducing smart technology and
innovation in rural development the following elements stand out: smart institutions;
development of smart infrastructure, broadband networks in rural areas and functional links
between villages and cities via adequate Internet access; development of mobile networks and
other communication technologies; smart services; digital platforms for e-government, e-health,
e-banking, e-literacy services and etc.; achieving greater mobility of the local population; better
organization of rural settlements; as well as precision agriculture.
Digitalization of rural areas:14
14
Digitising rural areas: new case studies | Europäische Netzwerk für die Entwicklung des ländlichen Raums (ENRD) (europa.eu)

38. Page | 28
CHAPTER TWO:USAGE OF DIGITAL TECHNOLOGY TO BENEFIT RURAL AREAS
2.4.1 Usage of digital technology to benefit rural development ;
Information and Communication
Technology has a vital role in connecting the rural community to outside world for exchange of
information, a basic necessity for economic development. Effective use of ICT can demolish
geographical boundaries and can bring rural communities closer to global economic systems and
be of meaningful help to the underprivileged.

39. Page | 29
CHAPTER TWO: DIGITAL TECHNOLOGY IN EDUCATION
2.4.2 ICT in Education
Education is the backbone of the nation. In many developing countries bringing a large
percentage of students to education system is a great challenge. The reasons may be the
geographical location, socio-economic condition etc. As example the north east states of India
many villages are scattered in impassable hill regions, West-indies and Filipinos are mainly
scattered islands. Poor transport facility discourages the rural students to come to school
regularly. Scarcity of efficient teacher in the rural schools and a large student teacher ratio to the
student side is also a reason for dropout of a large percentage of students in the midway of their
education. Thus a great mismatch of education quality is observed when comparison is made
with rural and urban students. Adoption of ICT in education can minimize the gap. Role of a
teacher is shifted from leader to facilitator in ICT based education system. Adoption of ICT in
teaching system enable and support the move from traditional `teacher-centric' teaching styles to
more `learner-centric' methods. A diverse group of students can learn simultaneously even in the
absence of teacher. An online repository must me maintained for accessing the study materials
247. There must be facility for teleconferencing, video conferencing with experts and for this a
certain pre defined time span must be broadcasted to the target learners.
A pre assigned interactive session may provide the opportunity to the geographically diverse
learners to interact with each other. Internet and World Wide Web open the door of the wealth of
learning materials in variety of subjects- thus can be thought as an any time anywhere library.
Achieving higher education from rural areas is a great challenge. Most of the male has to
contribute to their family income in their pre-youth and the girls are got married. ICT based
distance learning facility can help a lot in providing higher education to the rural students. Not
only in primary or higher education, anytime anywhere feature of ICT helps to provide adult
education in the rural area. Online vocation training in engineering fields like civil, electrical,
computer, mechanical etc. prepares experts in rural areas who can easily handle the rural needs
in peoples' dailylife activities.

40. Page | 30
CHAPTER TWO: DIGITAL TECHNOLOGY IN HEALTHCARE
2.4.3 ICT in Healthcare
The medical facility is the mostly neglected section in connection to the rural people. In the
perspective of developing countries there is no health center, even not a degree holder doctor
available in each village. In many rural hospital there is no full time doctor. Even the doctors do
not want to stay in rural areas due to lack of facility, opportunity, poor communication facility
etc. For this reason the rural people depend on the quackish even on ojha for health issues. This
gives an alarming figure of child death and mother death in rural areas. ICT has a great role to
play in health section in rural areas. Adoption of telemedicine in some rural areas of India has
given an encouraging result for its accecibility, affordability and availability. With this ICT
based facility a small E health kiosk with a trained person can provide medical facility to a large
number of people. When a patient is brought to the health kiosk, he enters the health details and
problems of the patient to a central server. The server communicates with some doctor in district
or urban hospital. The person at the kiosk communicates with the doctor to the other side and
performs check up and gives medicines according to the instructions of the doctor. By video
conferencing doctor sited at some urban health center can face to face talk with the patient.
Facility of pathological center is inadequate in rural areas. Even in some health centers the
pathological instruments are kept unused. Recruitment of some trained persons (Not pathologist
or radiologist) can operate the instruments and the captured images or results from some patients
are sent to some radiologist/ pathologist for analysis using ICT facility. For any major problem a
patient can take appointment of any doctor or clinical center located in urban area using ICT.
The health centers can also help the serious patients to get appointment of a doctor of any district
or major government hospitals with the help of ICT.

41. Page | 31
CHAPTER TWO: DIGITAL TECHNOLOGY IN AGRICULTURE
2.4.4 ICT in Agriculture
Rural economy is mostly depends on agriculture. Agriculture provides a square meal for filling
the stomachs of the growing population of a country, and this has made it critical for global
stability and development. Even with a noticeable growth in industrialization, agriculture still
accounts a major part in GDP of developing countries. But till in many rural areas the farmers
are cultivating same crops years after years, while in the mean time the weather, soil condition of
the land are changed, the pest have acquired immunity against the known pesticides -resulting a
declined production graph. ICT can transform the common agriculture process to a smart one.
With the help of ICT based service a farmer can directly seek advice in his own language from
some agricultural expert. He can apply online for soil test and get suggestion from experts
regarding the type of crop which will give best production to that type of land. In developed
countries ground sensors set up in agricultural field are used for crop protection. The sensors
provides information to the farmer regarding the necessity of irrigation, deficit of mineral (To
select appropriate amount of fertilizer), increase of pest etc. Adoption of this technology can
provide a better production in developing nations. Use of satellites and remote sensors provides
accurate weather forecast even a month ago. This gives farmer a long time for crop selection for
a season. He can seek for improved seed, best market price for his production, government's
credit program etc. from internet. Bulk purchasing policy of some multinational companies
directly from the farmer has eliminated the role of middleman as well as providing beneficiary to
the cultivators. Different state governments in India have adopted the facility of bringing fresh
vegetables directly to urban kitchen from farmers' field. ICT has given wings to these initiatives.

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CHAPTER TWO: DIGITAL TECHNOLOGY IN BANKING
2.4.5 ICT in Banking;
ICT help banks improve the efficiency and effectiveness of services offered to customers, and
enhances business processes, managerial decision making, and workgroup collaborations, which
strengthens their competitive positions in rapidly changing and emerging economies
Banks that use information and communication technology include basic Web portals and
electronic databases, as well as composite information management systems that seek to improve
government efficiency. And also the use of information and communication technology provides
the stimulus for economic growth. The real goal or objective of information and communication
technology in the banking sector is not just to provide access to modern technology, but also the
role of ICT in the banking sector is to develop linking communities together in the long run.
All over the world, banks are still struggling to find a technological solution to meet the
challenges of a quickly-changing environment and a customer’s demand for products and
services. The new technological changes that have brought to the banking sector are huge in their
impact on officers, employees, and customers of banks. Advances in technology are allowing the
banking sector for the delivery of banking products and services more conveniently and
successfully to the customer than ever before the banking products and services are delivered to
the customer. Rapid access to critical information and the ability of the bank to act quickly and
effectively will differentiate the successful banks of the future. The bank gains a dynamic
competitive advantage due to the use of ICT and by having an accountable customer service
environment, direct marketing, and new rationalized business processes. Today Banks are aware
about the need of customers that demand new products and services and also the bank plan to
make them available these products and services for the customer. ICT has increased the level of
competition between the banks and forced them to integrate the new technologies to compete and
satisfy their customers.
With the use of ICT in banking, it allows the banking sector to fulfill the needs of customers by
strengthening their internal control systems.
Extensive use of ATMs, Internet banking, mobile banking, smart cards, 24/7 services, plus the
ability to offer a wide verity of products and services have enabled the banks to improve their
service that is provided by the banking sectors to customers.

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CHAPTER TWO:FITNECH AND DEVELOPMENT
2.5.1 Implementation of Financial Digital Service
Introduction
In the past, fintech was dismissed by traditional financial industry professionals as new skin on
old rails. In actuality, Fintech sets new performance standards and has the potential to raise
traditional banking and financial industry by offering customer-centric services and upgrading
financial products and services designs. It also promotes greater financial inclusion through
better means for customers to access the financial products and services. This chapter details the
definition and concept of fintech, followed by the evolution and history of its existence. It also
attempts to paint the global landscape of fintech, which includes fintech investments in major
regions including Europe, the United States, Asia, and Africa, to provide a broad understanding
of the changing financial landscape.
Definition and Concept of Fintech Fintech in the etymological and general perspective is the
portmanteau of financial technology, refers to an emerging financial services sector that is fast
becoming indispensable to financial institutions, and is constantly impacting the way
technologies support or enable banking and financial services. Freedman (2006, p. 1) in his book
Introduction to Financial Technology describes financial technology as being concerned with
building systems that model, value, and process financial products such as stocks, bonds, money,
and contracts. Schueffel (2016) defined fintech as “a new financial industry that applies
technology to improve financial activities” after making an analysis of more than 200 scholarly
studies over the last forty years. We believe that this newly minted term can be associated with
start-ups and companies that are providing highly innovative and pioneering financial services or
products with the combination of information technology (IT) enabling ventures or by using the
latest available technology.
Waupsh (2016) explained the three groups of fintech products as white label, direct, and gold
label. “White label” is the type of product that is delivered to end users of financial institutions
through the financial institutions. These products are not developed by the financial institutions
themselves but are purchased from a fintech vendor who developed them. Examples of these
products include Moven’s work with TD bank and Westpac in Canada and Bill Pay from Check/

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CHAPTER TWO:FITNECH AND DEVELOPMENT
The second, “direct (to consumers or to business)” is directly delivered from fintech platforms to
consumers and to business. Examples of this type are Stripe, Venmo, Square, and Wealthfront.
The third type, in between the above two, is “gold label” and has features of both types of
products. Like direct, gold label fintech products are branded solutions to reduce user problems
and also have unique features. But these are also designed for financial institutions to help them
compete like white-labeled products and services. These are also distributed by the financial
institutions. Examples of this type are ApplePay, Dwolla, and Kasasa.
One of the basic differences between fintech and the bulk of the traditional financial institutions,
is the use of advanced, innovative, and digital technologies. The traditional financial industry has
large built-in IT infrastructures, and the industry is spending a big part of revenues on IT and its
infrastructure like servers. But the emerging fintech companies are the ones creating products
using more advanced technologies such as internet of things (IoT) devices, mobile phones,
blockchain-based innovations, big data analytics, and machine learning.By using these
technologies fintech companies are providing cheap and easy-to-access services, from transfers
and trading to crowdfunding, while operating largely outside of the banking regulations.
The “fintech” term was coined by Bettinger in 1972 in his “FINTECH: A Series of 40 Time
Shared Models Used at Manufacturers Hanover Trust Company.” Fintech’s popularity began in
the early 1990s and was initially used as a reference to the “Financial Services Technology
Consortium”—a project started by Citigroup in order to assist technological cooperation efforts.
Santarelli (1995) cited many studies on technological innovation and economic advancement,
which were conducted during the 1980s and 1990s and showed that economic development can
be enhanced and reinforced through the fusion of new technologies.
However, as Figure 2.1 shows, it was only after 2014 that the sector took off and attracted the
attention of the masses, which included everyone from technologists and researchers to industry
participants, regulators, and consumers alike. Forward-looking nations started accelerators,
incubators, and designed fintech ecosystems for their industry to thrive and to remain
competitive in the increasingly globalized financial environment.

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CHAPTER TWO:FITNECH AND DEVELOPMENT
Source: Group Trends Figure 2.115
:
As such, new and ultra-modern models of business are being introduced in the market
continuously. Fintech has become one of the most dynamic, engaging, and energetic segments of
the financial services marketplace.
The most active areas of fintech are data analytics, artificial intelligence (AI), digital payments,
digital currencies, crowdfunding, and other forms of peer-to-peer (P2P) financing. Table 2.1
shows the top sectors and investment in those sectors in 2017. Investment by Sectors (2017)
Table 2.1: Sector Investment (Year 2017) Mobile Payments US$450 billion P2P Lending $9
billion InsurTech $2.1 billion Blockchain $512 million Compiled from KPMG, 2018 and
Statista, 2018 Source: Evolution of Fintech
There have been four stages (Table 2.2) of industrial revolution, in which the first Industrial
Revolution used steam power and water to mechanize and increase production.
The second Industrial Revolution used electric power to create the bulk production. The third
used advanced electronics and information technology to make the production autonomous. Now
we are in the fourth Industrial Revolution that features the digital revolution that started and has
been occurring since the middle of the last century. It is typified by a fusion of technologies and
cyber-physical systems that are blurring the lines between the economic, physical, biological,
and digital spheres.
15
Google trends for “FinTech” search (2018).

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CHAPTER TWO:FITNECH AND DEVELOPMENT
First Stage Second Stage Third Stage Fourth Stage 1780s–end of eighteenth century 1870–start
of twentieth century 1960–1970 1970–present Start from mechanics, introduction of first water-
and steam-powered mechanical manufacturing facilities Introduction of electrically-powered
mass production based on the division of labor The usage of electronics and IT to achieve further
automation of manufacturing Introduction of cyber physical systems Modified from Henning
(2013). Source: It is important to discuss three major eras of the fintech evolution.
The first era, known as fintech 1.0, was from 1866 to 1987 where the financial industry, while
progressively became interconnected with technology, was widely still an analog industry.
The next era started in 1987, during which the financial services industry in developed countries
were not only becoming significantly globalized but also innovative and leveraging on digital
technologies. This period was characterized as fintech 2.0 and this era continued until 2008.
During this period, fintech was largely controlled by the traditional regulated financial industry
that used technology to deliver financial products and services. Since 2008, we saw the
emergence of fintech 3.0 where a large number of new entrants (start-ups) and innovative
technology companies have started to provide financial services and products directly to several
businesses and the general public. In the following sections, each fintech era is discussed in
detail. Table 2.3 summarizes the fintech evolution.
Summary of Fintech Evolution Table 2.3: Date 1866–1987 1987–2008 2009–present Era
Fintech 1.0 Fintech 2.0 Fintech 3.0 Fintech 3.5 Geography Global/developed Global Developed
Emerging/developing Key Elements Infrastructure Banks Start-ups/New entrants/innovators
Shift Origin Analogue linkages Digitalization 2008 financial crisis Last mover advantage
Modified from Arner, Barberis, Source: & Buckley (2015).
Evolution of Fintech Fintech 1.0 (1866–1987) In the late nineteenth century, the merger of
technology and finance created and established the foundation of the first period of
financialization that continued until the start of World War I.

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CHAPTER TWO:FITNECH AND DEVELOPMENT
During this period, new technologies such as the telegraph, transatlantic cable, steamships, and
railroads built financial interlinkages across the borders, permitting speedy transmission of
financial transactions, transfers, and payments around the globe. Meanwhile, the technological
advancements together with essential resources enabled deeper research and development of new
innovations and other existing technologies. The pantelegraph was invented by Giovanni Caselli
in 1865, which was most commonly used to verify signatures in banking transactions. The very
first telegraph was introduced in 1838, which was followed by the laying down of the first
transatlantic cable in 1866. It provided the fundamental infrastructure for the first cross-border
financial transaction in the late nineteenth century. In 1900, consumers and merchants exchanged
their goods using credit for the first time in the shape of charge plates and credit coins.
The Fedwire Funds Service was established in 1918 by the Federal Reserve Banks to transfer
funds and connect all twelve Reserve Banks by telegraph using the Morse code system. It was
the first code system used in the banking industry. J. M. Keynes, the renowned economist wrote
The Economic Consequences of the Peace in 1920 and gave a clear description of the correlation
between finance and technology in the first phase of the modern economic exchange: “The
inhabitants of London could order by telephone, sipping his morning tea in bed, the various
products of the whole earth in such quantity as he might see fit, and reasonably expect their early
delivery upon his door-step” (Keynes, 1920, pp. 10–12).
Modern-day credit cards were introduced in 1950 starting with Diners Club. In 1958 American
Express was founded by Frank McNamara. Quotron Systems introduced the Quotron in 1960,
the first electronic system to provide selected stock market quotations to brokers through desktop
terminals. The global telex network was put in place in 1966, which played a crucial role in
providing the communications necessary for the next stage of financial technology development.
Code-breaking tools were developed commercially into early computers by firms such as
International Business Machines (IBM), and the handheld financial calculator was first produced
by Texas Instruments in 1967.
Barclays Bank introduced the first automated teller machine (ATM) in 1967, calling it a “robot
cashier,” which allowed customers to get cash around the clock. With this, Barclays Bank
arguably marked the commencement of the modern evolution of today’s fintech, along with the
launch of the calculator. The ensuing decades between 1967 and 1987 was the time when
financial services moved from an analog to a digital Chapter 2: Fintech—Definition, History,
and Global Landscape 18 economy. The Clearing House Interbank Payments System, or
CHIPS, was established in 1970 to transmit and settle payment orders in American dollars for
some of the largest and most active banks in the world.
The NASDAQ—National Association of Securities Dealers Automated Quotations—was
established in 1971 in the United States, which signaled the end of fixed securities commissions.
The Society for Worldwide Interbank Financial Telecommunications, or SWIFT, was established
in 1973 to solve the problem of communicating cross-border payments.

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CHAPTER TWO:FITNECH AND DEVELOPMENT
The first online brokerage, E-Trade, was founded in 1982, when it executed the first electronic
trade by an individual investor. It is also worth mentioning that the first online banking platform
was introduced in Britain in 1983 by the Bank of Scotland for the Nottingham Building Society
(NBS) customers. It was called “Homelink” and became the first internet banking system by
connecting via a television set and the telephone to send transfers and pay bills. The world’s first
online shopper, Jane Snowball, in 1984 used a Gateshead SIS/Tesco system to buy food from
Tesco (Zimmerman, 2016).
Throughout this period, financial services providers enhanced their IT budget and its use in their
financial operations, steadily replacing different types of paper-based methods and procedures by
the 1980s, as computing power developed and risk management technology proceeded to
manage different internal risks. Among the noteworthy examples of fintech innovations that are
widely recognized by financial experts and professionals would be the Bloomberg terminals.
Michael Bloomberg began Innovation Market Solutions (IMS), later to be known as Bloomberg
LP, in 1981 when he left Solomon Brothers, where he used to design in-house computer systems.
IMS called its product Market Master at first, and the twenty original units operated at Merrill
Lynch at the end of 1982. In the 1980s, stock exchanges from New York to Tokyo were going
electronic, a prerequisite for a truly sophisticated online service for traders. And fortuitously,
Bloomberg terminals were in ever-increasing use among financial services providers (Arner et
al., 2015) along with other forward-looking devices such as the over-the-air (wireless) portable
pocket receiver QuoTrek, which gave instant stock market quotes to traders.
The Bloomberg Terminal of today provides more than 325,000 subscribers (as of October 2016)
with everything from an array of information on financial matters to a chat system to the ability
to actually execute trades. It processes 60 billion pieces of information from the market a day.
Fintech 2.0 (1987–2008) The year 1987 is considered historic because the risks regarding cross-
border financial connections and their link with digitalization and technology attracted 19
Evolution of Fintech the attention of regulators. One of the strong images from this period is that
of the investment banker wielding an early mobile telephone, which was first introduced in the
United States in 1983 and completely illustrated in Oliver Stone’s film Wall Street in 1987.
That same year also witnessed the “Black Monday” stock market crashes whose impact on
markets around the world clearly depicted they were interconnected through technology in a
manner not seen since the 1929 crash. Almost thirty years later and there is still no clear
consensus on the causes of the crash, at the time much focus was placed on the use of
computerized trading and finance systems by financial services providers, which bought and sold
automatically based on preset price levels.

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The reaction led to the introduction of a variety of mechanisms, particularly in electronic
markets, to control the speed of price changes (“circuit breakers”). It also led securities
regulators around the world to begin working on mechanisms to support cooperation, in the way
that the 1974 Herstatt Bank crisis and the 1982 developing country debt crisis triggered greater
cooperation between bank regulators in respect to cross-border issues (Traxpay Team, 2016).
The heavily digitalized financial services industry in the late 1980s was established on e-
transactions between financial industry participants, financial services providers, and customers
around the globe, by using the fax, having augmented the telex. In 1998 financial products and
services had developed for all practical objectives into the first digital industry.
The collapse1 of Long-Term Capital Management (LTCM) coincided with the Asian and
Russian financial crises of 1997–1998 showed the initial risks and limits enabled by complex
computerized risk management systems. However, it is important to be aware that the highly
leveraged nature of LTCM’s business, coupled with a financial crisis in Russia (i.e., the default
of government bonds), caused massive losses and made it difficult for LTCM to cut its losses in
its huge positions, totaling roughly 5% of the total global fixed-income market, and had
borrowed massive amounts of money to finance these leveraged trades. However, it was the
emergence of the internet that set the stage for the next level of development, beginning in 1995
when Wells Fargo used the World Wide Web (WWW) to provide online account checking.
By 2001, eight banks in the United States had one million customers online, with other main
jurisdictions Due to the small spread in arbitrage opportunities, LTCM had to leverage itself
highly to make 1 money. At the fund’s height in 1998, LTCM had approximately US$5 billion
in assets, controlled over US$100 billion, and had positions, whose total worth was over US$1
trillion. At the time, LTCM also had borrowed greater than US$120 billion in assets.
https://www.investopedia.com/ terms/l/longtermcapital.asp Chapter 2: Fintech—Definition,
History, and Global Landscape 20 around the world rapidly developing the same systems and
related regulatory frameworks to address risk. By 2005 the first direct digital banks having no
physical branches emerged (e.g., ING Direct, HSBC Direct) in the UK. In the 2000s
advancements in internet connectivity paved the way for a host of new fintech companies to
introduce consumer-facing solutions.
PayPal was launched in 1998 and it was among the early fintech companies that started
transforming the way people managed their money through payments. eBay was also one of the
first e-commerce empowerment websites that permitted consumers to create the market and
establish prices for auction items. And it all began to snowball from there (Desai, 2015).
Crowdfunding was started by a Boston musician and computer programmer (Brian Camelio from
the United States) when he first launched a project based on the website with the name of
ArtistShare in 2003 (Freedman & Nutting, 2015).

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By the start of the twenty-first century, financial institutions’ internal operations, cross border
interactions and an ever-growing number of their connections with retail customers had shifted
to digital mechanisms. Moreover, financial regulators were becoming habitual of technology
usage, particularly when it came to securities exchanges, which in 1987 was the most reliable
source of information related to market manipulation because their trading systems and records
were computerized. During this era, it was expected that the e-banking solutions’ providers
would be dominated and supervised by financial institutions, but this is no longer necessarily the
case. Although the use of the term “bank” in many jurisdictions is limited to companies duly
regulated as financial institutions, there were many new entrants, start-ups, and firms called
fintech companies providing different financial services.
The fintech companies of that decade were providing services for transfer, payments, investment
management, and lending. Envestnet and Yodlee were founded in 1999, Mint in 2006, and Credit
Karma in 2007 providing services for personal finance and investment management. Xoom was
founded in 2001, and Payoneer in 2005 providing services for money transfer and currency.
Prosper was founded in 2005, Lending Club in 2006, and OnDeck in 2007 providing lending
services. Klarna was founded in 2005, Adyen in 2006, and Braintree in 2007 providing services
for payments. Trading and data analysis provider fintech companies are MarketAxess, which was
founded in 2000, Market in 2003 and BATS Global in 2005 (FinTech Switzerland, 2016). In
other words, in developing markets there may be a lack of “behavioral legacies” whereby the
public expects that only banks can provide financial services. For this populace, as it was rightly
stated by Bill Gates in 1994, “banking is essential, banks are not.” Services will be essential to
financial transactions but bank branches will shrink as such services can now be provided on any
mobile phone.

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CHAPTER TWO: FINTECH AND DEVELOPMENT
The third era of fintech demonstrated that financial services providers may not merely rest with
regulated financial services industry. The provision of financial products and services by the
institutions called nonbanks may also mean there is no reliable home financial regulators to act
on the concerns of host financial regulators, and so whether the provider is authorized or not may
make a little difference. It is possible to say that the 2008 Global Financial Crisis was a turning
point and has increased the growth in the fintech 3.0 era. The post-2008 situation was an
alignment of market conditions, which laid the groundwork for the emergence of innovative
market players in the financial services industry. Among these factors are public perception,
regulatory scrutiny, political demand, and economic conditions. Each of these points is now
explored within a narrative that illustrates how 2008 acted as a turning point and created a new
group of actors applying technology to financial services. Two kinds of individuals were affected
by the financial crisis. On one hand, the common public developed a distrust of the traditional
banking system. On the other hand, many financial professionals either lost their jobs or were
now less well compensated. This neglected educated workforce found a new industry, fintech
3.0, in which to apply their skills. From a political perspective, increased unemployment and
reduced availability of credit because of the crisis was a challenge for the government regulators.
This is the political motivation in the United States behind the Jump Start Our Business (JOBs)
Act in 2012. The JOBs Act was passed to tackle these issues of unemployment and credit supply
in two ways.
On employment, the JOBs Act aims to promote the creation of start-ups by providing alternative
ways to fund their businesses (Arner et al., 2015). The rise of fintech 3.0 is deeply rooted in the
financial crisis, and the erosion of trust is generated. People’s anger at the banking system was
the perfect breeding ground for financial innovation. This is considered as good timing, because
digital natives (millennials) were becoming old enough to be potential customers and their
preferences pointed to the mobile services they understood and mastered, instead of bankers they
could not relate to. In this favorable landscape, fintech providers came in, offering new and fresh
services at lower costs, through well-designed platforms or mobile apps. The first-version
cryptocurrency bitcoin emerged and was introduced in 2009, providing an equivalent type of
transaction and also exchange of digital assets. It is a new type of asset, a new kind of
investment. It is opening a cashless world where people can easily go shopping with a handy
device or even their own valid identity. In 2011 Google pioneered the release of Google Wallet.
This year witnessed the mobile phone giants Apple and Samsung released their e-Wal-Samsung
Pay, and Apple Pay. Before the emergence of this payment solution, PayPal was offering
Payment Gate to connect buyers and merchants, which enforces and implements online payment
to be used widely.

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CHAPTER TWO: FINTECH AND DEVELOPMENT
There are many fintech companies that have emerged in this era. Fintech 3.0 started and emerged
as a reaction to the financial crisis along with the JOBs Act in the West, but in Asia and Africa
recent and latest fintech developments have been primarily provoked by the pursuit of economic
development. Some experts characterize the era as fintech 3.5. In Asia, Hong Kong, and
Singapore have seen the formation of three fintech accelerators in less than a year, providing
them one of the greatest concentrations of fintech accelerators in the world. Korea also has set up
an expanded version of Level 39 (London’s prominent FinTech coworking space).
On the regulatory side, Asian regulators have initiated a Fintech strategy and met in 2013 in
Kuala Lumpur to discuss this agenda alongside the World Capital Market Symposium (Arner et
al., 2015). Eventually, a new sharing economy has emerged and developed, which is steadily
shifting consumers into producers. Robo-advisors are using algorithmic programming so they
can provide automated investment advice and produce personalized investment portfolios at a
fraction of the cost of human advisors. Online lenders have begun to germinate, providing credit
to a widely underserved market of businesses and consumers largely ignored by the traditional
banks. Crowdfunding sites are also opening digital channels of financing for new entrepreneurs,
many of whom are launching their own fintech start-ups, thus creating a continual stream of
innovation

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CHAPTER FOUR: CASE STUDY
4.1 Introduction
With estimated two billion individuals and 200 million micro, small and midsize businesses
(MSMEs) in emerging economies considered as unserved or underserved by the formal financial
system (Manyika et al., 2016), financial inclusion has emerged as a critical challenge to
economic development. Many transact exclusively in cash, with no secured way to savingsand
investments, and limited access to credit beyond informal lenders and personal networks.
As new platforms and technologies are introduced to the market, the boundaries of traditional
business models are challenged. Digital financial services (or Fintech) can be provided with
greater accountability, efficiency and accessibility. Using digital channels rather than brick-and-
mortar branches can also dramatically reduce costs for providers, providing financial solutions to
individuals at all income levels and MSMEs in rural areas.
Ant Financial, China’s largest Fintech company under Alibaba, is set to revolutionize China’s
financial network, including digital payment, digital wealth management and loans. It lever-ages
on Alibaba’s well-established ecommerce platform - Taobao, along with Alibaba’s rural Taobao
Strategy. Focusing on the underserved markets by the major Chinese banks, Fintech can erase
huge inefficiencies, unlock significant economic opportunity and accelerate social development.
In this case, we review the current progress of digital hub for economic growth(transformation of
community to digital community)and digital finance in China and summarize their implications
on rural villages, focusing on Alibaba as a successful case. The remainder of this case study is
organized as follows. In the next section, we briefly review the issues and concerns that have
emerged in rural China. This review highlights the need to reconsider the underlying linkages
between urban areas and rural villages. Then, we introduce Alibaba’s rural strategies, including
Taobao Rural Service Centers and Taobao Villages. Subsequently, we review the Fintech
development in China, and summarize how e-commence and digital finance can help address
some of the issues in rural China and promote social inclusion.

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4.1.1 The historical trajectory of rural finance in China
Historically, access to financial services in China has been severely constrained. In the first half
of the twentieth century, due to the lack of formal financial institutions in rural areas, many rural
households engaged in locally-developed, and community-based, rotating savings and credit
arrangements, allowing them to access larger sums of money at crucial periods, e.g. for house
building, funerals, schooling, etc. (Hu, 2007). At the same time, during this period exploitative
loan sharks offering credit at extortionate interest rates were prevalent across the Chinese
countryside. Upon the establishment of the PRC in 1949, the Chinese Communist Party (CCP)
sought to break the power of local loan sharks and landowners through the establishment of the
Agricultural Bank of China (ABC) and a network of rural credit cooperatives (RCCs) across the
country, aimed at providing non-exploitative and affordable financial services to communities
and households (Cheng, 2006). During the agricultural collectivisation of the Mao era, RCCs
came under the control of the people’s communes. Due to the suppression of private
entrepreneurial activity, and the demonetisation of rural life through the work points system,
RCCs functioned as a means of financing rural industry and agriculture, as well as extracting
rural resources for the larger state project of urban industrialisation aimed at technological
upgrading (Zhang & Loubere, 2015).
With the onset of the economic reforms the late 1970s and early 1980s, the rural financial
landscape changed dramatically. The RCCs were put under the administration of the ABC, and
quickly became important local institutions providing crucial services as rural incomes rose.
Between 1978 and 1990, rural savings in the RCCs increased from 16.6 billion yuan to 214.5
billion yuan (Cheng, 2006, p. 27). However, the rural credit situation continued to be
constrained. The locally-based RCCs were required to transfer 30 per cent of all savings to the
ABC at low rates, reducing the amount of lending capital available in the townships and villages.
Moreover, the money that was available for lending usually went to local governments and
industries, rather than to households (Tam, 1988).
This situation was further exacerbated in the 1990s in a number of ways. First, the ABC retreated
from the countryside to focus its business in urban areas. Second, the Postal Savings and
Remittances Bureau (PSRB) was established and, since it provided higher rates of interest on
deposits than the RCCs, it deprived local financial institutions of savings. However, the PSRB
stored its deposits in the central People’s Bank of China, effectively extracting capital from the
countryside to the centre.

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CHAPTER FOUR: CASE STUDY
Finally, in the late 1990s rural China experienced a financial crisis, which resulted in the closure
and consolidation of many RCCs and rural cooperative foundations (Tsai, 2004; Zhang &
Loubere, 2015).
In this context, China’s rural financial system has largely served to extract capital from rural
areas for investment in the urbanisation and industrialisation of cities, with the result that lending
in rural areas has been severely restricted (Loubere, 2019; Loubere & Zhang, 2015). In 2014, the
total value of loans borrowed by rural households was 5.4 trillion yuan, accounting for only 6.4
per cent of the total national loan value. Only 27.6 per cent of the loan applications by rural
households were approved, considerably lower than the national average of 40.5 per cent.
Moreover, for every 10,000 rural people there is only one financial service worker, while there
are 329 per 10,000 people in urban areas (People’s Bank of China, 2014). Clearly, much of rural
China has been financially excluded and its population largely underserved.
Starting in the early 2000s, the central government has sought to refashion the RCCs into locally-
focussed development institutions through the mandate that they provide subsidised microcredit
to households (State Council, 2003). From 2006 onwards the rural financial system has been
further liberalised with a particular focus on the reduction of barriers to financial institutions
seeking to operate in rural areas, and the promotion of private or semi-private financial
intermediation in the countryside to meet the demand for small loans from households.
However, despite the introduction of new policies aimed at supporting the expansion of rural
financial services, rural people’s access to formal finance – particularly credit – has remained
seriously constrained. As of 2017 only 27 per cent of farmers were able to obtain loans from
formal institutions and it is estimated that the rural financial shortage was as high as 3.05 trillion
yuan – a staggering figure equivalent to the annual production value of Shanghai (Wang &
Li, 2017). These figures point to a number of hard truths for rural finance reformers, including
the fact that a large number of farmers have no access to basic lending services, the proportion of
agricultural loans to short-term loans is low, and there is a serious lack of risk control and credit
information (Zhou & Zhou, 2009). In order to address these issues, the government has sought to
transform the rural financial system at multiple levels by supporting a variety of traditional
banks, non-banking financial institutions, and small private financial organisations – such as
microloan companies (MLCs) and village and township banks (VTBs) – in the hopes that this
can expand formal financial coverage.
Across the country a total of 1,045 counties (or 55 percent of all Chinese counties) have
approved the establishment of VTBs, and by the end of December 2015 a total of 3,676 new
rural financial institutions were approved – including 2,303 RCCs, rural cooperative banks, and
rural commercial banks, and 1,373 VTBs, MLCs, and Mutual Aid Cooperatives.

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This influx of new institutions, many of which provide a range of different products, has
undoubtedly increased financial coverage, particularly with regard to lending. Private lenders in
particular often have a good understanding of local contexts and the conditions of borrowers,
reducing their management costs. However, access to financial services has nevertheless
remained relatively limited, especially for regular farming households, as most of these
institutions target rural SMEs and/or wealthier specialised farmers who have rented out large
tracts of land to scale up production (Huang, 2017).
The failure of rural financial liberalisation to make a substantial impact on service provision
points to fundamental difficulties inherent to the Chinese rural financial terrain. As mentioned
above, China’s rural economy has historically been a site of resource extraction rather than
capital retention. Financial institutions have thus found it difficult to survive with a strategy of
investing in rural areas themselves (as opposed to appropriating rural resources for investment in
more profitable urban areas). This is primarily due to the fact that agriculture is risky, small
scale, and cyclical – implying that the costs of risk management are likely to outweigh profits –
making it unattractive for commercial profit-seeking and risk-averse financial institutions. In this
sense, the liberalisation of China’s rural financial system has exacerbated the underlying
problems of rural banking rather than reduce them, as the new institutions are purely profit
seeking, and the traditional state institutions have been increasingly pushed to operate based on
market logics (Loubere, 2019). There are also problems from the perspective of borrowers
themselves. Rural people frequently complain about the difficulty of meeting the requirements
for borrowing, with lenders often requiring large amounts of information and long waiting times
(Loubere & Shen, 2018). In our experience, farmers will often say that they do not want to
borrow, as getting a loan requires a seal of approval from village and township officials,
financial institution risk control departments need to inspect houses and other assets, and
borrowers ultimately have to mortgage their property. This points to a serious lack of credit
information in the countryside. It also suggests that in order to truly transform the rural financial
landscape through the expansion of coverage as envisioned by proponents of rural financial
reform in China, there needs to be a more fundamental change than simply facilitating the
liberalisation of the rural financial sector for bricks-and-mortar institutions.
4.1.2 Emerging opportunities for digital finance in rural areas
The previous section points to an apparent paradox in rural financial service provision in post-
reform China. On the one hand rural China represents a potentially massive market, comprising a
consumer base that has become much wealthier over the past few decades (primarily through
migrant work and remittances); on the other hand, this vast market is chronically underserved,
and attempts to expand traditional financial coverage have generally failed, despite the
liberalisation of restrictive rural financial regulations.

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Drawing on the experiences of the global financial inclusion and fintech movements, Chinese
policymakers and financial technology experts have diagnosed the problems facing rural finance
in China as originating from high transaction costs (for both customers and institutions), a lack of
mortgageable assets, and a lack of reliable credit data. They have then identified technical
strategies, including the use of mobile terminals and big data, as a means of remedying financial
exclusion in the countryside, and have lobbied the government to encourage both traditional
financial institutions and Internet companies to move into rural financial service provision (Xie,
Zou, & Liu, 2014; Xie, 2018).
These calls have not gone unnoticed, and in recent years both Internet giants and smaller fintech
companies have rapidly expanded into the rural financial market. Moreover, encouraged by the
adoption of global financial inclusion discourse in government documents and speeches, digital
finance providers have consciously included financial inclusion messaging in their own
strategies – e.g. Ant Financial’s website includes a section on financial inclusion with
testimonies of the those who have benefited from easier access to loans (Loubere, 2017). The
Peking University Digital Inclusive Finance Index has charted the influx of financial service
providers and the corresponding financial coverage in the countryside over the past decade.
Primarily using data from Ant Financial, the index intends to reflect the development of digital
finance in a comprehensive manner. The index consists of 24 factors measuring three
dimensions: coverage, depth of use, and the degree of digitalisation. From 2011 to 2015 the
countrywide Index score grew from 40 to 220 – an increase of 450 per cent. This growth
demonstrates a more levelled playing field between ‘developed’ and ‘underdeveloped’ areas in
terms of financial coverage, with the gap between domestic prefecture-level cities narrowing
substantially. This seems to indicate that financial services provided through digital mediums are
less constrained by regional development patterns, resulting in more geographical coverage that
does not precisely follow the standard patterns of uneven development that have plagued post-
reform China, even if the poorest regions and individuals are still more likely to be excluded.
Increasing access to digital financial services would not have been possible in the absence of the
massive expansion of Internet infrastructure in China’s rural areas. By the end of 2015 the
number of rural netizens had reached 195 million – increasing at an annual rate of 9.5 per cent –
accounting for 28.4 per cent of total Internet users in the country. This growth has been fuelled
by increasing incomes, the popularity of smart phones, and the expansion of affordable mobile
coverage (CNNIC, 2016). By 2015, China’s 3 G network covered all townships and the 540,000
administrative villages across the country, and the 4 G network covered the vast majority of
more economically-developed townships.

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Additionally, there were more than 130 million broadband interfaces in rural areas, and 91 per
cent of administrative villages had broadband coverage, with the total number of rural broadband
users reaching 93.77 million (Ji, 2016).
This new digital infrastructure has provided the basis for a rapid expansion of digital finance
provision in China’s rural market, and has addressed some of the key challenges faced by
traditional financial institutions in the country. In particular, it has eliminated the need to build
and maintain physical outlets, which were costly due to the lower population density and less-
developed transportation infrastructure in rural China. Service provision by mobile phone has
reduced transaction costs greatly, and also saves institutions money by limiting the need to invest
in physical equipment, as transactions can be taken care of in the cloud. The results of this ability
to provide financial services virtually and cheaply have been explosive – 2016 the total value of
mobile payments in China exceeded $US 790 billion, or 11 times more than that of the United
States (Wang et al., 2017).
In addition to being less geographically constrained than bricks-and-mortar financial institutions,
digital finance has a number of inherent advantages in the context of rural China. For one, it has
allowed for innovations in payment and financing methods, which have generated huge amounts
of raw data and provided new possibilities for rural credit reporting (as well as the development
of new forms of surveillance capitalism in the countryside). This has the potential to address one
of the biggest issues facing rural lenders – the lack of information needed to produce reliable
credit scores and assess the riskiness of potential borrowers. Traditionally, rural lenders have
generally only been able to guarantee credit to large enterprises, many of which have, or had,
links with local governments that could act as guarantors. This situation has resulted in the
exclusion of small- and micro-enterprises and ordinary farmers, as they are usually without
collateral, a ‘modern’ credit consciousness, or credit information (Ong, 2012; Tsai, 2004).
Agriculture, in particular, has presented major problems for traditional lenders in China and
elsewhere, as it is an inherently risky activity based around seasonal, rather than regular and
predictable, earnings. Thus, despite the high demand for agricultural loans, rural financial
institutions have generally avoided them as much as possible, particularly for small-scale
farmers.
Digital finance, on the other hand, provides the potential for new ways of assessing risk through
big data, cloud computing, and other emerging technologies. It also provides the means to track
funds and production in real time, reducing risk and allowing for more efficient and cost-
effective loan products that can better meet the needs of farmers. Internet lenders also have had
the advantage of a lax regulatory environment, particularly in the early years of the industry’s
development.

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State-owned banks have strict controls on the amount of interest they are allowed to charge on
loan products, which substantially reduces the amount of profit they are able to earn. Newer
private institutional forms, such as the VTBs and MLCs, have more leeway, and are allowed to
charge up to four times the rate set by the People’s Bank of China (Loubere, 2019). Internet
lenders, however, have been relatively free to charge much higher interest rates.
When the fintech boom began in 2004, marked by the official launch of Alipay, the regulatory
environment was generally open and supportive. For example, while the first Chinese P2P
platform, Paipaidai, started operation in 2007, the first set rules governing the P2P industry was
not issued by the regulators until 2016 (State Council et al., 2016). Many considered the first
decade of the development of digital finance in China to be like the Wild West – innovative
startups with solid technological capacity and Ponzi schemes appeared all at once. The space
allowed by the regulators enabled entrepreneurs to experiment and to establish a market for
China’s digital financial services.
Over the past couple years the regulatory environment has become more constrained with the
central bank declaring that digital finance should play a complementary role to the traditional
financial sector and announcing the rationale and principles of regulatory rules. In late 2019 this
was taken a step further and all P2P lenders have now been required to transform into microloan
companies within one or two years, with a minimum capital requirement of 50,000,000 yuan
(State Council et al., 2019). A number of provinces and municipalities – including Shandong,
Hunan, Henan, Chongqing and Shenzhen – have even moved to completely ban P2P lending
(The Paper, 2019), and there are now only three platforms still in operation.

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4.2 “Hollowed Villages”
The current definition of urban residents includes migrant workers who have worked in cities
for more than six months, however, migrants might not benefit from the urbanization process
in the same way as the original urban residents do. A distinctive feature of China’s urban-
ization is the hukou, or household registration system, which links receipt of social services
(from healthcare to education) to a residence permit. This system has created a bias against
settling rural-to-urban migrants in the cities by keeping migrants’ access to local public services
restricted (Guan et al., 2016). By March 2014, 269 million Chinese migrant workers and their
families live in places where they are not registered and are thus legally excluded from some
local public services.1
The migrant workers without hukou have difficulty integrating themselves into the urban so-
cieties and their welfare is concerning. This means that there are millions of children of urban
workers who live in rural villages apart from their parents because they are legally excluded
from the schools in the city. Likewise, many migrants must return to their home villages for
health care because they have limited access to these services in the places they live and work.
These migrants often return to their villages if they lose their job in the city.
As large number of rural workforces migrated to cities and towns to earn a living, many
dwellings were left behind in the inner village unoccupied either seasonally or permanently.
The rapid depopulation caused massive outflow of rural investment and industries and further
created a unique phenomenon known as “hollowed village” (Liu et al., 2010). “Hollowed
villages” are communities in which depopulation and housing modernization has led to the
abandonment of a significant number of properties, spread throughout the settlement (Liu,
2009;Liu et al., 2010; Long et al., 2009). Since early 1990s, many villages in China have seen an
increasing number of deserted houses, which is not only a waste of land, but also an impedi-ment
to urbanization and the development of rural villages. Homes that are unoccupied may even
become public dumps. Statistics show that hollow villages now account for 20 to 30 percent of
the villages in Shandong province (China Daily, 2015).According to 2010 census
figures, China’s migrant population number was 221 million or 16.5 percent of all citizens in
2010.

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The number is expected to surpass 300 million and maybe reach 400 million by 2025.
A government report issued in 2011 said more than 100 million more farmers would move to
urban areas over the next decade. Between 2000 and 2010 an estimated 116 million people from
China’s hinterlands migrated to the booming coastal cities in the hope of finding better lives
(China Labor Bulletin, 2011).
Since farming doesn’t bring much profit, most young men leave home seeking jobs in the
cities. Once they have left their village many of them don’t want to return to their home to
live. They find their villages’ economic and social conditions depressing. They also worry
about their children because village schools are of lower quality than schools found in the
cities. A study of 2,749 villages in 17 provinces found that 74 percent of these villages had no
one left behind who was fit to go work in city factories as migrant workers (Bradsher, 2010).
During the busy farming season, the elders, women and children are seen as the main labor force
in fields across most Chinese rural villages.
The process of rural hollowing has obviously caused a series of problems, such as low efficiency
of rural residential land use, and lateral expansion of rural dwellings at the expense of farmland
loss, decrease in the ability of rural inner development, and deterioration of rural residential
environment (Liu et al., 2010; Wang, 2010). As such, rural hollowing is a holistic degradation of
rural functions, and becomes a major problem facing China’s agriculture and rural development
(Long et al., 2012).

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4.2.1 The “Left-Behind” Children
Besides the “hollowed villages,” another major challenge that China faces is the rural “left-
behind” children. With parents gone searching for jobs, many children are left behind to be
brought up by grandparents or other relatives. The only time the children meet their parents is
when they return home over the Chinese New Year holiday. Often, some don’t make it home
because they are required to work overtime at their factory or construction site.
According to the census conducted in 2005, 58 million children, accounting for 21.7% of the 0-
17 age cohort of children, were left in villages by their migratory parents (NBSC, 2005). The
Sixth National Population Census indicated that this number increased again from 3 million to 61
million in 2010, which represents 37.7% of rural children (NBSC, 2011). At the compulsory
education stage (elementary and junior high school), the number of children who are left behind
is 22.7 million (MOE, 2011).
Under constraints from institutional arrangements, such as the Household Registration System
(hukou), in China, rural migrant families who live in cities benefit little from the available
human resource service programmes that fund education and health. One example of these
families’ problems is that their children cannot be enrolled in urban public schools without them
having to pay more than the parents of the children who have urban hukou, and they usually
cannot afford this cost (Lai et al., 2009). The latest research indicates that migrant students who
are unable to enroll in public schools perform significantly worse than their more fortunate
counterparts (Chen and Feng, 2013). Although there are a number of private and for profit
schools that the children of migrant workers can attend in some cities, the high tuition fees of
these schools are usually accompanied by poor facilities and underqualified, demoti-
vated teachers. Furthermore, most of these schools, which are not certified by the government,
have the risk of being shut down. Thus, in most cases, these families’ school aged children are
left behind in villages when the parents move to the city for work (Wu et al., 2004).

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Many studies, including the ones by Lee (2011), Meyerhoefer and Chen (2011) and Wen and
Lin (2012), Liang and Chen (2007) indicated that temporary parental migration into cities or
suburban areas significantly decreased children’s school enrollment rate. The left-behind chil-
dren are usually looked after by poorly educated grandparents who are unable to substitute the
roles of the parents (Biao, 2007). Grandparents may either spoil the children or fail to provide
enough emotional care (Wang et al., 2006). Furthermore, living with grandparents is often
correlated with certain negative health outcomes (Gao et al., 2010).

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4.3 Alibaba’s digital financial push
Alibaba and its spin-off company Ant Financial (renamed as Ant Group since July 2020) are
perhaps the best placed to capitalise on the expansion of rural digital finance. This is because
Alibaba already has a widespread rural market network through Taobao, currently the largest e-
commerce platform in China and second largest in the world. Taobao came online in 2003 and
has exhibited explosive growth since 2008. The platform currently has nearly 800 million
registered users and an average of 48,000 items are sold per minute. With the staggering
development of e-commerce, China now accounts for more than 40 per cent of global e-
commerce and its total annual online sales value is greater than that of the United States,
Germany, France, Japan, and the United Kingdom combined (K. W. Wang et al., 2017).
This rapid expansion of e-commerce has had profound impacts on China’s rural economy. In
2009 Alibaba announced its first ‘Taobao village’, or cluster of e-commerce businesses operating
in a single locale. For a village to become a Taobao village, it needs to achieve a total annual
value of e-commerce transactions, or gross merchandise volume (GMV), of no less than 10
million yuan and have a considerable proportion of e-business owners among the villagers – at
least 100 active online stores or a minimum of 10 per cent of local households operating online
stores. The Taobao village phenomenon has spread widely, with the largest concentrations in the
coastal regions, notably Zhejiang, Jiangsu, Guangdong, and Shandong. The number of Taobao
villages skyrocketed from 212 in 2014 to 3,202 in 2018. As rural e-commerce flourished, Taobao
village groupings have emerged forming Taobao townships – places with at least three Taobao
villages. By 2018 the number of Taobao townships reached 363 – a 20-fold growth from 2014
when there were only 17 in the country. Alibaba has also been involved in central government
plans aimed at expanding e-commerce in rural areas, such as the ‘village Taobao programme’
(cuntao jihua) or the ‘thousands of counties and tens of thousands of villages programme’
(qianxian wancun jihua). These plans aim to inject 10 billion yuan to establish 1,000 county-
level service stations and 100,000 village terminals to reduce transaction costs and promote rural
e-commerce. Between 2014 and the end of 2018, approximately 40,000 villages across almost
every province of China were connected to e-commerce through the programme, representing a
vast logistical ecosystem across rural China that can supply agricultural produce to urban
markets (AliResearch, 2017; Couture, Faber, & Gu, 2018; Lian, Bian, Su, & Cao, 2017).

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This nationwide logistics and commerce network has necessitated the creation of a new type of
financial infrastructure. Alibaba’s engagement with financial service provision started with
Alipay, which was officially launched in 2004. Alipay was established to provide a solution to
the lack of trust between sellers and buyers on Taobao. As a third party payment system, Alipay
essentially serves the role of a credit intermediary or a guarantor that ensures the integrity of
online transactions between total strangers. However, Alipay was only the first step in a wider
strategy, and by the time it was put under the control of Alibaba’s fintech arm Ant Financial in
2014, the company was well positioned to extend a range of financial services to the rural
population. By March 2017, Alipay had 163 million rural users registered to make payments for
online products, utilities, or even hotel reservations (Lian et al., 2017).
In September 2015, Alibaba’s MY Bank rolled out its ‘Wangnong Loan’ product, which
provides credit of up to 500,000 yuan without any mortgage or guarantor at a monthly interest
rate of one percent for a duration of six months, 12 months, or 24 months. By early 2016 the
Wangnong Loan already covered 2,425 villages in 139 counties and 24 provinces across the
country, with an average loan amount of 44,000 yuan. Like JD’s operations, the lending process
for the Wangnong Loan combines elements of manual applications with the collection of credit
data aimed at feeding into an automated system in the future. Prospective borrowers must be
recommended to apply through the village Taobao terminal, and must provide identity
documents and information about assets. The recommenders mainly come from two sources: one
is those working with the Taobao terminals in respective villages and the other is the China
Foundation for Poverty Alleviation (CFPA) Microfinance (zhonghe nongxin). CFPA
Microfinance was one of the original microfinance programmes in China set up though an NGO-
government partnership, but in 2008 it spun off into a private independent organisation.
Alibaba then manually conducts an audit while saving the credit data for future use. Loan
approvals often take three to five days, which is substantially less time for approval through
state-owned banks or rural credit cooperatives. The person who recommended the lender is then
responsible for reminding them to repay the loan, a method of local surveillance aimed at
reducing transaction costs through joint liability lending, which is prevalent in the global
microfinance movement. In this way, the Wangnong Loan represents a hybrid form of
digital/manual risk control.
Alibaba has access to big data on the commercial activities of regions and localities, which is
combined with offline data collected through financial documentation and local people as
recommenders, references, and surveillants. In the absence of collateral and conventional credit
information in rural China, these two data streams are then jointly analysed and fed into risk
control algorithms. In this way Alibaba is collecting and harnessing data emerging from
interpersonal relations at the local level that have thus far been difficult to collect or quantify in
any systematic way.

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The company expects that as they continue to collect data, their AI systems will continue to learn
and improve their predictive capabilities, allowing for increased automation of the lending
process in the future. Alibaba sees this as a way of transitioning away from manual data
collection, while still being able to assess risk with high levels of accuracy, and thus provide
loans to borrowers with little or no assets. The data are also augmented with the continued
expansion of the Taobao e-commerce platform across the countryside, as user data inform
lending practices as well. While MY Bank’s so-called ‘310’ model – three minutes to apply, one
second to receive the fund, and zero human intervention – has been used to successfully provide
microloans to tens of millions of small and micro-businesses, the lending programmes in rural
areas continue to rely on additional non-digital information to complete evaluation of loan
applications. It remains an open question as to whether this mass data collection can actually
provide the predictive function that Alibaba envisions to drive lending decisions purely based on
big data analytics.
In effect, Alibaba’s digital lending is just one element in a much wider strategy of creating a
coherent and integrated financial/logistical ecosystem incorporating financial services and rural
marketisation. Alibaba is geared to create supply chain finance in the rural context such that the
demand for the various financial services of producers and associated businesses are integrated
into, and covered by, Ant Group’s comprehensive rural finance/logistical ecosystem.
And this is just the beginning of a much bigger rural strategy. In 2016, Ant Financial established
its rural finance section and introduced a comprehensive package of rural financial services –
including loans, payment, insurance, and wealth management. The company plans to inject one
trillion yuan worth of loans within three to five years. At the root of Alibaba’s rural financial
development strategy is the goal of integrating their own big data and technical capability with
the smaller data resources of local governments. In September 2020, MY Bank announced that it
aspires to serve 10 million small and micro businesses through supply chain finance within the
next five years, and an important means to achieve the goal of greater inclusion is by establishing
strategic collaboration with 2000 rural districts/counties (China Security Journal, 2020). Clearly,
it is well recognised that in addition to data, more in-depth and nuanced local knowledge is
necessary to achieve the company’s goals.

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4.3.1 Alibaba’s Rural Taobao Strategy
By the end of 2015, 46.14 percent of the total Chinese population was still living in rural ar-
eas (NBSC, 2015). Providing access to e-commerce and digital financial services to millions
of the country’s poorer residents and MSMEs can help raise the living standards in China’s
countryside. It could also be translated into a lucrative opportunity for the e-commerce giants
like Alibaba. Alibaba seized this vast and largely untapped growth opportunity. “We’re really
hoping to bring e-commerce to all of China’s village, so that rural people can get a taste of
the city life and sell their own products in the cities,” said Jack Ma, Alibaba Chairman (Wang,
2014).
Alibaba Group was listed in New York Stock Exchange on September 19, 2014. After its IPO,
it announced the three major strategies, “e-commerce in rural areas, globalization and big
data” (Aliresearch, 2015). Thereafter, the rural strategy of Alibaba Group began to officially
come into being. Taobao is Alibaba’s e-commerce arm, China’s largest e-commerce website
with a consumer focus. Alibaba’s Rural Taobao Strategy comprises of “dual cores”, namely,
Rural Taobao and Taobao Villages. The two core strategies are discussed in detail in the fol-
lowing section.
Table 2.1: Internet penetration in China’s urban and rural population in year 2006-2014
(in thousands).
Year Urban Urban % of Internet Rural Rural % of Internet
Populati Internet Users in Urban Popula- Internet Users in Rural
User Population tion User Population
2014 749160 470280 62.77% 618660 178460 28.85%
2013 731110 440950 60.31% 629610 176620 28.05%
2012 711820 408340 57.37% 642220 155660 24.24%
2011 690790 377130 54.59% 656560 135790 20.68%
2010 669780 332460 49.64% 671130 124840 18.60%
2009 645120 277190 42.97% 689380 106810 15.49%
2008 624030 213400 34.20% 703990 84600 12.02%
2007 606330 157830 26.03% 714960 52620 7.36%
2006 582880 113890 19.54% 731600 23110 3.16%
Source:CNNIC(2015)农村互联网发展状况研究报告;NationalBureauofStatisticsofChina(NBSC)(2015)中国统计年鉴

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4.4 Taobao Rural Service Centres
At the end of 2014, the internet penetration rate in China’s rural areas was only 28.85 percent
compared with 62.77 percent in the cities (CNNIC, 2015). Table 2.1 presents the Internet
penetration rates among China’s urban and rural population between 2006 to 2014.
Alibaba aims to bring convenient and affordable goods and service to rural areas so that the rural
residents can fully enjoy the benefits of the information society. Since about three quarters of the
China rural population does not have access to Internet, Alibaba decided to take the services to
the customer’s doorsteps.
To better serve the rural residents and to support agricultural innovation and economic
development in rural areas, Alibaba Group released the “1,000 counties and 10,000
villages”bprogramme (namely the rural Taobao mode) in October 2014. This programme brings
forward
10 billion RMB (about 1.48 billion USD) of investment on logistics, hardware, and training
in the next three to five years to establish 1,000 county-level Service Centers and 100,000 service
stations in rural areas (Aliresearch, 2015). The programme would develop rural Taobao by
building county-level operations centers in county seats and village-level service stations in
villages as parts of a rural e-commerce service system. It would build information and logistic
channels to “bring consumption goods to the countryside” and explore the ways of selling rural
products online.
Many Taobao Rural Service Centers are located at the local convenience store, where com-
puters, wall-mounted flatscreen monitors are provided, with well-trained villagers serving as
representatives. In the service centers, villagers can check out the latest Taobao online deals

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Table 2.2: Best-selling product categories.
Ranking Best-selling Product Categories
Sold through Taobao Rural Service Centers Sold by Taobao Village
Merchants
1 Home appliances Apparel
2 Mobile top-up Furniture
3 Women’s apparel Shoes
4 Kitchen appliances Automobile accessories
5 Men’s apparel Bags, luggage and leather
products
6 Mobile phones Toys
7 Cleansers/feminine hygiene products /tissues/air Home products
fresheners
8 Flower deliveries/artificial flowers/plants Bedding products
9 Women’s shoes Outdoor products
10 Furniture Home improvement materials
Source: Alizila (2016a, 2016b) An Introduction to Taobao Villages,16
on mobile phones, toothpaste, pesticide dispensers, and many more. They can get accustomed to
making purchases and paying bills online, as well as picking up items they purchased from
Taobao. By September, 2016, more than 16,000 Taobao Rural Service Centers were already in
place (Alizila, 2016a, 2016b). To ensure timely delivery of purchases, Alibaba is opening
warehouses and working with delivery companies and local officials.
Historically, with low incomes, dispersed populations, and poor logistic infrastructure, the
rural areas haven’t attracted many brick-and-mortar stores. Thus, shopping in rural China had
been characterized by limited choice, inflated prices, and poor quality in the past. With the
help of Taobao Service Centers, it takes little time for the rural consumers to realize that the
price is cheaper, the choice is better, and it is far more convenient to shop online, noting that
they no longer need to make a half-day trip to the dealers. In 2015, the best-selling items sold
through Taobao Rural Service Centers were home appliances, mobile top-up and women’s
apparel (Wang, 2015). Table 2.2 presents the best-selling product categories of both items
sold through Taobao Rural Service Centers and those sold by Taobao Village merchants. In
this process, Alibaba is nurturing the culture and habit of shopping online among the rural
population.
16
Retrievedfrom http://www.alizila.com/an-introduction-to-taobao-villages/; Wang (2015) E-commerce Gaining Traction in Rural China; Retrievedfrom
http://www.alizila.com/e-commerce-gaining-traction-rural-china-2/

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In addition, the centers have provided other innovative services. By working with local branches
of Railcom, China Unicom, Telecom and other operators, the centers provide recharging services
and Internet access; through collaboration with Ali Trip, they provide services such as train
ticket, air ticket and hotel booking to villagers; through cooperation with Alipay, it grants credit
to rural Taobao partners and provides services such as living expenses payment and cash
withdrawing in small sum to villagers. It will soon rely on the platform of AliJK in the future and
provide service such as registration, medicine pick-up and remote di-agnosis.
On the November 11 shopping festival in 2015, service centers of rural Taobao in the whole
country accomplished the turnover of 293 million RMB (about 43.4 million USD) in
a single day, more than 30,000 RMB (about 4,440 USD) in each village on average, which
demonstrated the huge consumption potential of rural areas in e-commerce (Aliresearch,2015).

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4.4.1 Taobao Villages
Besides bringing consumption goods to the countryside, Taobao digital hubs for business service
(Taobao Service Centers) also serve another important function - selling the agricultural products
to cities. Since 2009, clusters of rural online entrepreneurs who have opened shops on Taobao
began to emerge in China.
These clusters are often referred to as “Taobao Villages”. The number of Taobao Villages has
been on the rise since then. According to AliResearch, a “Taobao village” is defined as a village
with a large number of online merchants who adopt Taobao as the key trading platform, relying
on the Taobao e-commerce ecosystem and forming a scalable cluster. The criteria of Taobao
villages include the following three principles (Aliresearch, 2015):
1. The trading places are mainly rural areas;
2. The annual turnover in e-commerce reaches 10 million RMB (about 1.48 million USD) or
more;
3. The number of active online merchants in the village reaches 100 or more, and/or active
online shops account for 10% or more of the local households.
In May 2015, Taobao Villages launched the “2.0 mode”. Its partners changed from owners of
traditional village convenience stores to specialized “rural Taobao partners”. The rural Taobao
partner programme targets the local villagers who are open-minded, familiar with the Internet
and online shopping, especially young migrant workers who are returning to their hometown
from the cities. A total of 1311 Taobao villages widely distributed in 18 provinces were founded
in China as of the end of August, 2016 (Ali Institute and the New Village Research Center,
2016). Apparel, furniture and shoes are the best-selling products categories sold by the Taobao
Village merchants. The list of top ten product categories in terms of 2015 sales is presented in
Table 2.2.
With the help of more and more rural Taobao partners, many traditional farming communi-
ties have gradually transformed into e-commence clusters with many new job opportunities,
including both Internet-based jobs and logistics related positions.

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The drain of young work-force in the countryside used to pose a great threat to the economic and
social development of the rural areas. By attracting more and more young migrant workers to
come back to TaobaoVillages from the cities, Alibaba’s rural strategy not only promotes business
start-up opportunities, employment and economic development, but it may also mitigate many of
the issues caused by rapid urbanization.
The connection to urban consumers through Taobao Villages is also changing the farmers’
attitudes towards the goods they produce and their agricultural practices. They earn more by
removing the middlemen and cutting short the supply chain, going straight to the consumers.
Their consumers are mostly urban residents who are concerned about food quality and safety.
Thus, villagers are focusing more and more on producing quality goods rather than cutting cost
and compromising on quality.
To support the Rural Taobao Service Centres and Taobao Villages, Alibaba has helped rural
areas build the infrastructure of e-business, including trade, logistics, digital payment and fi-
nancing, cloud computing, data analytics and so on. Other business entities and entrepreneurs
outside of the Alibaba ecosystem can also make use of the infrastructure in the future and
contribute to the rural economy. Alibaba is working with third-party logistic service providers
to set up the logistic channels in rural areas through subsidy and other means; Cainiao net-
work built the “distribution network for big household appliances,” covering 95% districts and
counties in the country and 500,000 villages; Mantianxing programme had incorporated 51
counties in the country by December 2015 and traced the sources of high-quality agricultural
products; Ant Financial had connected more than 2,300 rural financial institutions, served
more than two million rural e-businesses and provided business loans to 180,000 small and
micro corporations in rural areas, lending 30 billion RMB (about 4.43 billion USD) in total
(Aliresearch, 2015).

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4.5 Digital Financial Services and Fintech Platforms
One crucial factor that helped spur the fast growth of Taobao Villages in China is the rise of
new technology enabled financial services for the rural residents and micro businesses (Lee
and Teo, 2015). According to the most recent Financial Inclusion Index reported by Peking
University,2
from 2011 to 2015, the gap between different regions in China in terms of fi-
nancial development has substantially narrowed due to the availability of digital financial
technology. For example, in 2011 the financial inclusion index showed that Shanghai ranked
No. 1 in financial development in China and the figure was 4.9 time of that for Tibet, which
ranked the lowest. However, this gap has dropped to 1.9 times in 2013, and 1.5 times in 2015.
Furthermore, in a subsector ranking in terms of level of support through digital services,
cities and small towns in central and western China showed surprising results. Most of the
top 10 ranked cities are from central and western China, for example, Guoluo region in Qinhai
Province, Tacheng region in Xinjiang Province, and Ali region in Tibet. The measurement of
level of support through digital services included factors such as mobile payment and loan
interest rate. This showed that although lagging behind in terms of financial inclusion, western
regions in China have surpassed the more developed areas in eastern China in terms of usage
of mobile payment.
When it comes to mobile payment, there are two leading companies in China, namely, Al-
ibaba and Tencent, each with their own financial services subsidiaries. These two giant companies
have shifted the entire financial services sector with their digital financial solutions in the past
few years, not only changing the way that businesses are conducted, but also the way people live.

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4.5.1 Ant Financial Serveries Group
Ant Financial Services Group (Chinese: 蚂蚁金服), founded in 2004 and based in Hangzhou,
is an affiliated company of the Chinese Alibaba Group. Formerly known as Small and Micro
Financial Services Company, Ant Financial initiated its formation process in early 2013 and is
now comprised of six financial services entities that are affiliated with Alibaba. The name ‘Ant’
was chosen to symbolize the potential strength of a number of smaller brands working together.
The new Ant Financial Services Group oversees six financial service entities that are affiliated
with Alibaba, including: Alipay; Alipay Wallet; Yu’e Bao, a money market fund with 570 billion
RMB (about 84.15 billion USD) under management; Zhao Cai Bao, a third-party financial
services platform; micro-loan provider Ant Micro; and MYBank, a pri-vate bank (Zhou et al.,
2015).
1. Alipay Alipay is the world’s leading third-party payment platform. As of the end of 2013,
the number of Alipay registered users reached 300 million and the number of partnering
financial institutions exceeded 200. Due to Alibaba’s dominant market position in e-
commerce, Alipay has emerged as the online payment processing market leader in China.
It clears 80 million transactions per day, including 45 million transactions through its
Alipay Wallet mobile app (Shih, 2014). Data show that among all the new Alipay users
in 2014, 48% were from first- and second-tier cities, with third-tier cities accounting for
the remaining 52%. Forty-nine percent of new Alipay wallet users were from first- and
second-tier cities, with 51% from third- and fourth-tier cities (Business Wire, 2014).
2. Alipay Wallet Alipay Wallet has operated as an independent brand since November
2013. As of October 2014, there were 190 million annual active users (Lee, 2014). In
addition to provide basic services such as shopping payment, credit card repayment,
money transfer, and utilities bill payment on mobile phones, Alipay Wallet is expanding
its offline applications to shopping malls, convenience stores, taxis and hospitals.

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3. Yu’e Bao Yu’e Bao was launched in June 2013 jointly by Alipay and Tianhong Asset
Management. According to Tianhong, as of the end of June 2014, Yu’e Bao had attracted
approximately 570 billion RMB (about 84.16 billion USD) in assets under management
and nearly 125 million Yu’e Bao users. Zeng Libao, Yu’e Bao’s money market fund, be-
came the largest individual money market fund in China, according to Tianhong Asset
Management’s Q3 2013 Financial Report. At the end of May 2014, Ant Financial gained
approval from the China Securities Regulatory Commission to acquire a 51% stake in
Tianhong Asset Management (Business Wire, 2014).
4. Zhao Cai Bao Zhao Cai Bao launched in April 2014 as an open platform for investment
and financial products and services. Zhao Cai Bao is open to third-party financial insti-
tutions and provides convenient and safe Internet finance services for individuals and
MSMEs. Products offered on the platform include loans for small and medium
enterprises, individuals, universal insurance and structured funds.
5. Ant Credit Ant Credit provides micro online loans to small and micro enterprises and
individual online entrepreneurs, evaluated based on data. The products include credit
loans, online merchant loans and loans for Taobao sellers.
6. MYBank Ant Financial received approval from China Banking Regulatory Commission
on September 29, 2014 to set up a private bank called MYBank together with Shanghai
Fosun Industrial Technology, owned by Fosun International; a subsidiary of Wanxiang
Group, and Ningbo Jinrun Asset Management. MYBank is part of a pilot programme
launched earlier that year and the first tentative step by the country to open its closely
guarded banking sector to private investors. MYBank will fully utilize online and big
data analytics to serve the financial needs of small and micro enterprises, as well as
individual consumers.
Ant Financial is a financial services provider, rather than a financial institution with major
financial holdings. It focuses on serving small and micro enterprises, as well as individual
consumers.

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Building on Internet-based solutions and technology, it works with financial in-
stitutions to create an open ecosystem, as well as provides support to the financial industry to
realize its vision ‘To turn trust into wealth’. Ant Financial Chief Financial Officer Eric Jing
said in 2015, “In the future, the financial ecosystem will be characterized by collaboration
rather than competition”. Like Alibaba’s ecosystem in the e-commerce industry, a similar
ecosystem will emerge in the financial industry. This ecosystem will be supported by cloud
computing, big data and credit systems that enable payment, financing, wealth management,
insurance (InsurTech) and banking platforms and services (Tan et al., 2016). We believe that Ant
Financial will play a key role in leading the development of this ecosystem for the benefit of
small and micro enterprises and individual consumers. As mobile commerce continues to gain
ground in China, the products and services offered by Ant Financial are increasingly part of
entrepreneurs’ and consumers’ daily lives.

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4.6 Technology Behind the Services
The various business operations of Ant Financial are supported by cloud computing, big data and
credit systems. Ant Financial opens up these supporting platforms to partners to create a new
financial ecosystem.
Big Data Analytics Ant Financial has utilized big data technologies in many of the services
in their new financial ecosystem. For the past few years, the MYBank and the former “Ali
Small Credit” have been giving out small and micro loans using a model based on big data
analytics. Using their clients’ data and relevant predictive modeling, they could conduct credit
analysis, and approve loans in a “310” standard, namely, 3-minute application, 1-second
approval, and 0 human intervention. In five years, they have given out more than 4 million loans
to small and micro business with a total loan amount of more than 700 billion RMB (about 103.4
billion USD). It provided the dearly needed capital to those small and micro businesses to help
them survive and develop, so that they could create more jobs in the rural regions.
Similarly, the application of big data is also fully reflected in the Ant Financial’s third-party
credit rating service - sesame credit. “Sesame credit” is the credit rating computed using massive
data mainly from five dimensions, including: user’s credit history, behavior preferences,
performance of contract, identity features, and personal connections. Sesame credit is built on
Alibaba’s e-business data and Ant Financial Internet finance data, and collaborates with public
security networks and other public institutions and partners. Differently from the traditional
credit rating process, the Sesame credit data covers more information such as credit card
repayment, online shopping, online transfer, water and electricity payment, rental in-
formation, changes in addresses, social relations and so on. Through the analysis of a large
number of network transactions and behavioral data, Sesame credit can provide users’ credit
assessment, which in turn helps the Internet financing companies to evaluate users’ willing-
ness and ability to repay the loans, so that they can provide users with fast credit and install-
ment services.

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Face Recognition Technology Ant Financial Services has been working on the evelopment of
biometric technology and its application in the field of Internet identity authentication, to achieve
higher security and better user experience. Based on the leading face matching algorithm, they
developed the interactive face detection technology and the image desensitization technique and
designed the system security architecture with high concurrency and high reliability. These
technologies have been successfully applied in products and services in the MYBank and Alipay
identity authentication and other applications. Among them, the core algorithms are in vivo
detection algorithm, image desensitization algorithm and face alignment algorithm. According to
a study conducted by the Chinese University of Hong Kong in 2014 using the international
public face database LFW, the accuracy of the face recognition algorithm (99.6%) has exceeded
that of the naked eye (97.2%) (Uwechue and Pandya, 2012).
Cloud Computing Technology Ant Financial Cloud is Ant Financial’s cloud computing ser-
vice. Built on Alibaba and Ant Financial’s cloud computing technology, rich experience and
consolidated resources, Ant Financial Cloud is tailored for the needs of the financial industry
research and development. As an integral part of the “Internet Thruster” program, the Ant Fi-
nancial Cloud is an open cloud platform that promotes financial innovation and helps financial
institutions to upgrade their IT infrastructure to build safe, low-cost and innovative financial
applications, so that financial institutions can better serve their customers. After several years
of efforts, Ant Financial Cloud now has the achieved following capabilities: high availability
disaster recovery (99.99% availability), secured funds management (billions of funds / daily
changes), high concurrent transactions (85,900 transactions per second processing power),
real-time security control (millisecond risk defense capability), and low-cost transactions (a few
cents for single transaction).
Risk Management Technology The core to mobile payment is to meet the users’ needs and
provide fast and secure transfer of money. How to control risk becomes the industry’s top
priority. Founded in December 2004 and with years of exploration, Alipay has achieved in-
telligent and remarkable control and prevention of risk. Alipay risk control system uses the
original historical transaction data for personalized verification to improve account security.
About 80% of the risk events can be solved in the intelligent control process. In addition to
the ex post audit and pre-prevention, monitoring is also very important: classification of the
account to ensure different accounts corresponding to different risk levels; conduct strategic
risk assessment and monitoring review on the new online products.

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Among all the 7000 employees in Ant Financial Services Group, more than 1,500 employees
are dedicated to risk monitoring, analysis and management. At present, Ant Financial is work-
ing with the public security organizations such as the Police Force and the Court to stop the
Internet financial fraud cases, and to combat financial crime. In addition, Ant Financial is also
actively working with banks, third-party payment companies, risk management related hard-
ware and software vendors, Alipay merchants and users, universities and research institutions
and other sectors of the community to enhance the security and capability of whole payment
industry.
Artificial Intelligence Technology Artificial intelligence technology is used by Ant Finan-
cial in the area of “smart customer service”. Ant Financial uses data mining and semantic
analysis technology to achieve the automatic judgment and prediction. It can identify the
user’s identity information, apply user’s behavioral logic, and predict what problem the user
has encountered, and summarize the common problems faced by many users. In the process
of communication, “My Customer Service” applies semantic analysis and other techniques
to obtain critical information and then conduct the match. In addition to “smart customer
service”, Ant Financial also has the smart quality control and refund ability. In the past, com-
panies needed to go through research to evaluate the quality of service, and sampling coverage
was about 2%. Now the robot can be real-time customer service personnel to achieve intelli-
gent automatic quality control for all transactions. The other feature is smart payouts. In the
insurance business, “My Customer Service” already has professional audit capability to com-
plete the payment in an average of 24 hours, of which 32% claims can be completed within
one hour directly, and 50% of complex claims can be completed within 6 hours.

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4.6.1 Tencent Holdings and WeBank
Ant Financial in not the only player in China’s hot market of internet finance. Rival Chinese
Internet giant Tencent Holdings Ltd. also operates a competing payments platform known as
WePay. Moreover, it has launched China’s first private bank - WeBank, which happens to be an
entirely online operation. WeBank is notable for being the first bank not entirely controlled by
the Chinese government. Yet, perhaps more importantly, it has no brick-and-mortar presence,
which means customers do all their banking online, from depositing and transferring funds to
securing loans.
Tencent is a major player in China, providing a wide range of services, including its own
social network, an instant-messaging platform known as QQ and the mobile app WeChat.
China’s closest equivalent to Facebook, the WeChat social network is used by 600 million people,
and the company also owns an e-commerce company and is a major force in online gaming.
WeBank, a joint venture led by Chinese gaming and social network group Tencent Holdings,
became the first private bank to start operations under a pilot, after the banking regulator
granted licenses to six such institutions in 2015. Its name comes from WeChat, Tencent’s
popular instant messaging and social networking app. WeBank’s scope covers personal banking,
corporate banking, and international banking. Given its diverse portfolio of companies,it’s
perhaps no surprise that it added banking to the mix. By jumping into banking, Tencent puts
itself in direct competition with government-sponsored banks across China. However, the charter
for private banks allows WeBank to focus on individuals and small businesses, rather than large
corporations. Private, online banks can issue small loans, collect deposits and perform other
standard banking tasks.
WeBank is actively seeking to expand its personal-loan service called Weilidai—“a tiny
bit of loan” in English—which allows users to borrow up to 200,000 RMB (approximately
29541.88 USD) without providing a guarantee or collateral. No traditional credit checks and no
wait. In September 2015, Tencent’s popular WeChat messaging app, which has 650 million users,
added the Weilidai service as an additional feature for a limited number of creditworthy users.
The new loan service relies on bank account information as well as data gleaned from a user’s
social network history to gauge a person’s creditworthiness in seconds. How much you spend on
restaurants and cabs, which are also part of WeChat’s web of e-commerce, might help determine
your creditworthiness.

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The loans can extend up to 20 months and carry interest rates staring at 0.05% a day. How fast
WeBank can expand will depend in part on Chinese regulators. Still, China has enlisted the
Internet companies in part because their expertise in online services could help make the
country’s financial sector - long dominated by stateowned banks - more competitive and
responsive to private customers.

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CHAPTER FIVE: DISCUSSION
5.1 Discussion: the implications of rural fintech in China
These examples of the efforts of China’s two largest e-commerce platforms to expand into the
rural financial market and create integrated market ecosystems represent radical visions of the
country’s future rural-urban socioeconomic relations. Importantly, both companies are not only
framing their rural strategy in terms of their own business interests, but rather depict their push to
the countryside as a benevolent win-win, where the expansion of e-commerce and financial
services through new technologies promotes beneficial forms of socioeconomic development for
rural places and their populations, while also more effectively transferring agricultural products
to the cities for consumption. As such, China’s Internet giants depict themselves as playing a
crucial role in the construction of a ‘modern’, ‘civilised’, and ‘harmonious’ countryside in line
with governmental plans and strategies, and reflecting the concept of ‘scientific development’
that has underpinned contemporary Chinese approaches to achieving rural modernity and
prosperity.
In addition to reflecting Chinese development narratives, both JD and Alibaba also frame their
activities within wider global rural development discourses. In particular, the expansion of e-
commerce is depicted as part and parcel of the goal of creating ‘inclusive markets’ for rural
development, promoted by the United Nations Development Programme (UNDP) and others. In
the words of the UNDP, inclusive market development ‘not only addresses poverty alleviation
but typically several of the other Millennium Development Goals (MDG’s)’ (United Nations
Development Programme, 2010, p. 9).
Key to this vision of inclusive market development is the expansion of financial inclusion
initiatives, which are seen as the bedrock upon which socioeconomic development and poverty
alleviation can occur within an inclusive market system. As the World Bank states in their
2014 Global Financial Development Report: ‘Financial inclusion is important for development
and poverty reduction. Considerable evidence indicates that the poor benefit enormously from
basic payments, savings, and insurance services. For firms, particularly the small and young ones
that are subject to greater constraints, access to finance is associated with innovation, job
creation, and growth’ (World Bank, 2014, p. 3).

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The new frontier of financial inclusion is digital finance, and recent studies in other contexts
have suggested that the provision of digital financial services both promotes development and
reduces poverty, with one high-profile article even claiming that access to the M-Pesa digital
payment platform pulled two percent of the Kenyan population out of poverty (Suri &
Jack, 2016). This has led many to believe it is now a ‘scientific fact’ that integration into the
digital financial system (and by extension inclusive e-markets) reduces poverty and promotes
development (FAO, 2017).
With its unprecedented expansion of e-commerce and digital finance over the past decade, China
is widely seen as being at the forefront of the inclusive markets/finance revolution. Indeed, a
recent joint report by the People’s Bank of China and the World Bank highlights perceived
successes of China’s approach, and seeks to provide advice for other countries attempting to go
down a similar path (World Bank Group & People’s Bank of China, 2018). In this vein, both JD
and Alibaba see themselves as being at the vanguard of this digital push to the countryside. Ant
Financial’s own website describes itself as ‘a technology company that brings inclusive financial
services to the world … to support the future financial needs of society’. And in a recent report,
AliResearch states that the ‘rapid adoption of Internet and e-commerce globally has offered a
historical opportunity to promote inclusive development … [and] to effectively provide equitable
development opportunities for every section of society’ (AliResearch, 2017, p. 10). As such, the
involvement of both companies in the creation of integrated logistics chains, the expansion of
their e-commerce regimes, and (crucially for all of this to function) the development of an
inclusive digital rural financial system, is all perceived as inherently beneficial for society, and
reflective of China’s continued march towards rural modernity and prosperity.
There can certainly be no denying that this expansion of Internet financial services has had a
profound impact on the lives of rural people and the operation of rural businesses that were
previously unable to access formal financial services. JD’s approach has the potential to play a
role in transforming how agriculture works in China. The company’s lending products for broiler
chickens not only allows smaller farmers to participate by providing them with technology and
previously unavailable credit, but it also integrates them into a market and logistics chain,
eliminating middlemen and potentially allowing for more profit for the farmers themselves.
Similarly, Alibaba cuts out middlemen and allows rural people to get straight to the market. The
Taobao platform, and the development of Taobao villages and townships, also provides the basis
for small actors to link up and assert themselves in ways that were not previously possible as a
group. For certain rural actors this type of market integration and financial inclusion most
certainly has the potential for empowerment.

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The apparent success of China’s Internet giants in extending commercial financial services to the
countryside is all the more significant considering how previous attempts to expand financial
inclusion in rural China have failed (see Section 2). The reason that these digital finance
providers have managed to overcome seemingly intractable hurdles is through the production of
alternative and big data and the advancement of AI systems to process them. This has been
transformative for two reasons. First, it addresses the problem of rural people lacking collateral,
which has been the primary reason for credit bottlenecks in the Chinese countryside. Secondly, it
creates a process by which large amounts of previously inaccessible credit data have been
generated, remaking the rural financial landscape and creating a data rich environment where
before there was essentially a data blackout. This makes it possible for credit to be dispersed
based on the perceived future productive capabilities of prospective borrowers assessed through
modelling. This changes the entire lending model at a fundamental level. Traditional credit
provision is based on two points – the assessment of creditworthiness at the beginning, and either
repayment at the end or the claiming of collateral upon default. Digital agricultural loans, in
contrast, have supervision, assessment, and surveillance built into their design, and thus
interaction between the lender and borrower happens at innumerable points throughout the
lending/production/repayment process. This is a game-changer with far-reaching implications
going well beyond the simple provision of loans.
However, some of the implications of this sea change are also worrying, and there is cause to
question the pervasive optimism underpinning the narrative of beneficial economic inclusion. If
integration into e-commerce platforms and digital financial inclusion actually represent a
straight-line to rural development, as proponents suggest, then China is positioned to see further
dramatic reductions in rural poverty and socioeconomic advancements on the back of the
initiatives pushed forward by China’s Internet giants. However, not mentioned in the accounts of
the Alibaba, JD, and mainstream global development institutions is the fact that inclusive
markets, the rationalisation and centralisation of agricultural production, and ‘constituting the
unbanked’ (Aitken, 2017) through processes of financial inclusion are heavily contested concepts
– with a robust critique of this type of economic inclusion as a means of promoting development
having emerged over the past decade (Bateman, 2010; Bernards, 2019).
In particular, it is important to note that the type of rural restructuring implied in both JD’s and
Alibaba’s visions, while revolutionary considering the amount of raw data they aim to produce
and collect, is not actually fundamentally different from agricultural supplier arrangements and
contracting systems that exist elsewhere. Research has shown that in other contexts this kind of
centralised, and often locally monopolised, creation of rural-urban agricultural logistics chains
can end up resulting in exploitation, rather than empowerment, for farmers – particularly small
scale and poorer ones (Sivramkrishna & Jyotishi, 2007).

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At the same time, this kind of restructuring has potentially negative environmental implications
with agricultural outputs being shifted from local markets to national and even global supply
chains, resulting in a larger ecological footprint and reduced sustainability compared with
previous, more locally-oriented modes of agricultural production.
The global microcredit and financial inclusion movements have also been the target of critical
studies, with recent impact assessments countering claims of positive outcomes of microcredit
programmes (Duvendack & Maclean, 2015; Duvendack & Mader, 2019), contesting the
argument that financial inclusion results in female empowerment (Goetz & Gupta, 1996;
Maclean, 2013), and pointing out that inclusion into the formal financial system actually tends to
reproduce exploitative relations at the local level (Bateman, 2010; Taylor, 2011, 2012). Digital
inclusion has also come under fire, with critics pointing to India’s recent demonetisation efforts
and even directly contesting the claims of poverty alleviation related to M-Pesa in Kenya
(Bateman, Duvendack, & Loubere, 2019; Mader, 2016).
At a more fundamental level there is a lack of discussion on prioritising financial health over
profitability, efficiency, and convenience of the technological applications. After all, fintech
should be seen as a means to an end, with human wellbeing placed at the centre of concern. We
only need to look to the examples of Uber, Amazon, and the Chinese digital gig economy to
realise that the application of digital technologies can lead to highly exploitative outcomes, even
if this is an unintended consequence (Lecher, 2019; Rao, 2019; Sainato, 2019).
The alternative and big data push also comes with its own set of anxieties as we enter into an age
of pervasive digital surveillance being developed by both governments and companies
worldwide. In the context of the United States, we have the examples of Amazon and Palantir, e-
commerce and tech companies that have leveraged their ability to produce and process predictive
big data to work with police and border control forces (Hao, 2018; Winston, 2018). In the
context of China the efforts of JD and Alibaba can also be seen as the expansion of a
comprehensive system that Shoshana Zuboff has termed ‘surveillance capitalism’, where
personal data itself becomes the commodity (Zuboff, 2019). Surveillance capitalism is already
well developed in China due to the high levels of Internet penetration and the expansive e-
commerce system. However, rural areas have continued to be a blank spot in the data landscape,
which presents huge opportunities for big tech companies looking to capitalise on new sources of
data.

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CHAPTER FIVE: DISCUSSION
As we can see from the two examples in this paper, the integration of rural areas and people into
the digital financial system certainly has the potential to increase rural incomes, generate
employment, and improve agricultural productivity. However, it remains to be seen how these
benefits will be distributed across rural areas and populations. The two cases also suggest that
fintech has taken different forms in shaping China’s rural financial development. Based on
intimate knowledge of local modes of production and aided by the accumulation of producers’
data, JD’s lending model is built-in to every step of the production process and deviation from
the predicted behaviour would be interpreted as a sign of risk. In contrast, Alibaba’s is less tied
to any specific industry. Its model relies on ever-expanding accumulation of data as recorded on
the platform, supplemented by additional information that is not captured by digital means.
Most discussions surrounding the development of digital finance in China have focused on the
improvement of technology and economic returns. But it is also important to note that the
application of digital technology in rural areas has far reaching implications beyond immediate
economic factors and technical capacity. More thought needs to be put into the ethical, legal, and
regulatory concerns surrounding the rapidly expanding digital financial ecosystem. Indeed, the
fast development of digital financial technologies poses distinct challenges for financial
regulators, law makers, and the general public in China and beyond.

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CHAPTER SIX: CONCLUSION
6.1 Conclusion
The ultimate goal of Alibaba Rural Strategy is the realization of increase in farmers’ income,
growth of rural economy, upgrade of agriculture and new urbanization through the “popular-
ization of Internet” in rural areas.
This is followed by a discussion of how this rural digital financial push has been framed and
perceived, and an analysis of the implications of this rapid digital financial expansion. The study
argues that digital financial inclusion and integration into the e-commerce market has had some
beneficial outcomes for rural people and companies; but it remains an open question as to
whether these benefits will lead to the improvement of rural society as a whole, and it certainly
poses new and significant challenges on various fronts.
Focusing on two of the most high-profile attempts to financially and economically include the
Chinese countryside in the digital finance system, this paper represents an initial exploration into
what digital financial inclusion means for rural China. However, China’s fintech landscape is
both varied and rapidly changing, meaning it does not easily lend itself to generalisations or
static descriptions. Moreover, the extension of digital financial services has been uneven across
the country, both in terms of coverage and operational models. As such, there is a need for future
research that combines quantitative analysis with in-depth fieldwork in order to better understand
the multifaceted and diverse socioeconomic impacts of digital financial inclusion across rural
China.

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Biography
Mr.Irfan S. Zejnullahu was born in Presheve, Serbia.He holds a BS in Business Administration
from South East European Univeristy,North Macedonia and MSc. In Digital Business Model and
Entreprenuarship from Hochschule Der Bayerischen Wirtschaft, Germany.His Research interests
include E-Commerce, Digital Business, Digitalization etc..

90. Page | 80
Censorship of Book
Mr.Ali Hussein17
said “In the era of technical advancement, where everything revolves around
the ``e`` world, digitalization has spread its wings over all the spheres of life. This book sizes and
explains kindly impact of digitalization on community development in rural areas”.
17
Researcher from Renmin University of China and Centennial College from Toronto, Canada