digitalization and development rural communities

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

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

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

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

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

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

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

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

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

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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

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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

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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

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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)

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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

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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).

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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).

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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.

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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?

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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.

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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.

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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.

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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).

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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.

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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).

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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).

Page | 17
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)

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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.

Page | 19
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.

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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.

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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.

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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

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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.

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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.

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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

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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.

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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)

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.

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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.

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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.

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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/

Page | 34
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.

Page | 35
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).

Page | 36
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.

Page | 37
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.

Page | 38
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.

Page | 39
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).

Page | 40
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.

Page | 41
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

Page | 43
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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CHAPTER FOUR: CASE STUDY
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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