Borrower attitudes, lender attitudes and agricultural lending in rural China

Abstract

Purpose – The purpose of this paper is to investigate the lender-borrower relationship as it relates to Sannong loans for agricultural and rural financial markets by Rural Credit Cooperatives (RCCs) and other rural lenders. This paper is motivated by recent reforms to the rural credit market designed to encourage increased lending, particularly to farmers. Little is understood about the lender-borrower relationship in rural China. This paper fills that gap. Design/methodology/approach – The paper investigates relational attitudes between 120 loan officers at RCCs in China's costal Shandong province, paired with a field survey using matched questions to 394 farm households in the same region. Pairing lenders’ perception toward borrowers regarding RCC microcredit lending mechanism, against borrowers’ perception toward lenders and how themselves were perceived by lenders in the same regards, the paper investigates the degree of disconnect between lenders and with distinct cluster groupings based on their perceptions, the paper analyzes the influence of demographics on the borrower and lender cluster memberships. Findings – The paper identifies four borrower clusters and two lender clusters. Borrower clusters are segmented on credit access and satisfaction with their rural lender. The paper also identifies two lender clusters, segmented principally on financial incentives and lending activities. While all lenders view farming with higher regard than farmers believe they do, one cluster is clearly pro-farmer while the second is somewhat indifferent. Indifference is more related to current portfolio activities. The paper draws conclusions that policy initiatives should be put in place at RCCs that close the gap between lender and borrower in their credit relationship. Rural lenders should concentrate on advocating RCCs’ care and trust toward agriculture and farm households. At the institutional level, effort should be extended to train a dedicated team of loan officers that specialize in servicing farm households with standardized lending practices. This research provides financial institutions with outreach mechanisms to borrowers, while also training lenders to borrowers’ sensitivities. Originality/value – Management studies of RCCs are few. This is the first paper that the authors are aware of that studies farmer and lender attitudes on the same scale.

Heterogeneous choice in the demand for agriculture credit in China: results from an in-the-field choice experiment

“…Given the reformation of agricultural credit policies in China in the 21st century, it is important to understand the drivers of credit demand and any informational and/or institutional gaps between lenders and borrowers (Kong et al, 2014;Turvey et al, 2014;Cao et al, 2016). By and large, the literature related to agricultural finance in China mostly investigates the characteristics of the borrower with surprisingly few examining agricultural credit as a consumer product characterized by a bundle of attributes of varying importance to farmer-borrowers.…”

Factors affecting Chinese farmers’ microcredit participation

“…Among those farmers with microcredit experience, 82 percent used an RCC to obtain their loans. RCC are the largest microcredit supplier among formal financial institutions (Kong et al, 2014). In total, 10 percent of interviewed farmers used The Agricultural Bank of China; and most of the remaining farmers obtaining credit reported other local commercial banks, postal saving banks or private usuries as the source.…”

“…Attitudes toward, and preferences for, lending venues have also been investigated. Kong et al (2014) clustered farmers based on their attitudes toward and participation in guarantee lending groups. This participation is often used as an eligibility criterion by lenders.…”

“…Important credit accessibility constraints exist (Kong et al, 2015;Yuan and Xu, 2015). While demand for credit is high, the number of branches of rural financial institutions is insufficient, rural credit capital is undersupplied, and credit can be expensive and even unattainable for many farmers (Kong et al, 2014;Xiang et al, 2014). Tan (2014) estimates that as many as 80 percent of low-and medium-income farmers do not have adequate credit.…”

“…Some initiatives have already been introduced to help overcome factors that continue to make it challenging for many farmers to obtain loans from traditional financial institutions. For example, the business tax on interest income from small loans to agricultural clients was eliminated (Kong et al, 2014;Turvey et al, 2014); the Chinese government hosts an Office of Financial Inclusion to ensure that all rural villages have access to credit (Turvey and Xiong, 2017); and there has been a push to accelerate availability of microfinance; a source of financing that can help fill the void left by other sources of financing ( Jia et al, 2015). Microcredit is a popular intervention in China, and is subsidized by the government to facilitate rural development (Loubere and Shen, 2018).…”