Microfinance
Farmers’ choice and informal credit markets in China
Why Chinese farmers choose informal financial associations more than formal financial institutions
Authors:
Y. Yuan; Y. Hu; P. Gao
Publisher:
AgEcon Search, 2011
Informal credit markets are very active in China. This paper investigates farmers' borrowings in China from both formal and informal sources with higher/lower interest, by looking into both demand and supply of loan. In this context, the document sheds light on lending criteria or the factors underlying the credit-scoring model.
The paper clarifies that although Chinese government has made efforts in developing the formal financial markets in rural areas, still, borrowing from informal channels reached high levels among farmers. Consequently, informal financial associations have become a major channel of borrowing, together with formal financial institutions.
Main findings are as follows:
- about 86% of rural households are in debt, among which 40% obtained their loans from informal markets and 16% from banks
- the relationship between the probability of credit market participation and age follows an inverted U-shaped pattern
- however, age has no impact in terms of formal loan participation
- education and gender variables are found to have no significant effect on the borrowings
- county institutional settings have significant effects on the demand for credits in both formal and informal markets
- household characteristics and financial conditions have a large and varying influence on farmers‟ borrowing behaviour
