Informal lending amongst friends and relatives: Can microcredit compete in rural China?

Turvey, Calum G.; Kong, Rong

doi:10.1016/j.chieco.2010.05.001

Cited by 134 publications

(93 citation statements)

References 14 publications

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“…Besides less access to material goods, rural residents are also characterized as relying more on informal institutions (such as kin networks) rather than formal institutions (such as the market). For example, the majority of farm households in rural China borrow money from friends and relatives rather than formal financial institutions (Turvey and Kong 2010).…”

Section: Introductionmentioning

confidence: 99%

Who Coresides With Parents? An Analysis Based on Sibling Comparative Advantage

Wen

2016

Demography

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Coresidence between elderly parents and their married adult children is common in East Asian societies. We analyze theoretically and empirically with which adult child parents coreside when the extended family has multiple adult children, and we show that this decision-making process can be rationalized. Specifically, we find evidence that suggests division of labor among family members through the choice of coresidence. Theoretically, we show that when parents can help children with housework, they will coreside with higher-educated children whose opportunity cost of housework is higher. On the other hand, when parents need help from children in housework labor, they will coreside with lower-educated children, whose opportunity cost of housework is lower. By adopting a data set containing information on parents and their married adult children, we find that our two hypotheses are supported among families from rural China. The probability of coresidence is positively associated with relative education of the children when parents can provide help but negatively associated with education when parents need help.

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Section: Introductionmentioning

confidence: 99%

Who Coresides With Parents? An Analysis Based on Sibling Comparative Advantage

Wen

2016

Demography

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“…Rural households therefore relied heavily on informal networks based primarily on lending between relatives and friends for credit (Jia, Heidhues, & Zeller, 2010;Turvey & Kong, 2010).…”

Section: Microfinance In Chinamentioning

confidence: 99%

Commercialization and mission drift: Evidence from a large Chinese microfinance institution

Jia

Cull

Guo

et al. 2016

China Economic Review

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Front-line loan officers of microfinance institutions (MFIs) are important in acquiring information on potential borrowers and selecting them in accordance with the MFI's mission. We use a unique data set on loan officers and their loan portfolios from China's largest NGO microfinance institution to test whether officers' personal characteristics affect the size and quality of their loans. We study a period in which the institution shifted from reliance on government donations and subsidies to commercial sources of funding. Imposing more commercial incentives on loan officers could affect how they balance potentially competing objectives to serve the poor and pursue profitability. We find that loan officers who were formerly farmers or worked in local government were better able to maintain lending to poorer borrowers, without incurring substantially lower repayment rates on their loans. In short, it appears that the career backgrounds of loan officers did play a role in preventing mission drift.

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“…This specification allows the model to reduce the number of estimates and analyse unobserved joint or net effects of shocks within the same category. In order to further support consistency of results, in Table XI we report estimates of another model where the number of alternatives is reduced to three, that is only-formal, only-informal and non-borrowing, a common methodology employed by studies in credit choice analysis (such as in Beer et al, 2010;Turvey and Kong, 2010;Mohieldin and Wright, 2000). The observations for "both" are split up randomly between "only-formal" and "only-informal."…”

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confidence: 95%

Shocks and credit choice in Southern Ethiopia

Castellani

2014

Agricultural Finance Review

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Purpose -The purpose of this paper is to examine how shocks suffered by rural households in Ethiopia influence their decision to borrow and the source of credit. Design/methodology/approach -First, suppose a household faces a set of four borrowing alternatives: only formal borrowing, only informal borrowing, both formal and informal borrowing, and non-borrowing. Second, the paper assumes that the random component is independently and identically distributed in accordance with the extreme value distribution. These assumptions lead to the multinomial logit model. The paper estimates the model using data from a survey of 350 rural households in Southern Ethiopia. Findings -The paper finds that shocks are important factors in explaining both the decision to borrow and the source of credit. In particular, negative shocks that affect household's assets, such as the seizing of farmland and theft, or human capital, such as the death of the family head, reduce the probability of borrowing from formal lenders or from both formal and informal lenders at the same time. The study supports only to some extent the assumption that informal credit contributes to smooth consumption. Last, networking effect is very significant and demonstrates how the two markets interact. Research limitations/implications -A model that would consider dynamic consumption patterns would have been more appropriate. In fact, one of the limitations of the study is the reliance on a cross-section analysis and the data is limited to just one village. Further research would extend the data set geographically and across time. Practical implications -The formal lenders are not willing to provide contingent loans, maybe because of a limited ability to assess and diversify risk. Besides, the available formal credit products are not proper to finance long term risk management strategies but pesticides, fertilizers and improved seeds that are entirely used in every agricultural cycle. In this regard, proper risk transfer strategies and instruments, as well as better tailored loan products, are needed in order to increase outreach into the rural areas. Originality/value -To the authors' knowledge, this is the first paper that investigates how shocks influence the decision to borrow and the source of credit in Ethiopia.

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Informal lending amongst friends and relatives: Can microcredit compete in rural China?

Cited by 134 publications

References 14 publications

Who Coresides With Parents? An Analysis Based on Sibling Comparative Advantage

Who Coresides With Parents? An Analysis Based on Sibling Comparative Advantage

Commercialization and mission drift: Evidence from a large Chinese microfinance institution

Shocks and credit choice in Southern Ethiopia

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