Rural Credit Constraint and Informal Rural Credit Accessibility in China

Abstract

This paper investigates the effects of rural households’ demographic characteristics on formal credit constraint, and explores the relationship between informal and formal lending in rural China. Using 2013 China’s Household Finance survey data, the authors apply probit regression models to investigate the effects of demographic factors on formal credit constraint and the household’s decision to borrow from informal credit sources. In addition, the endogenous switching regression model is applied to evaluate the impact of credit constraint on the welfare of rural farm households. The empirical evidence confirms that age, family size, annual household nonagricultural income, level of education, and history of informal borrowing have significant influence over credit constraint. Moreover, annual household nonagricultural income, the presence of children, borrowing from social networks and monthly communication expenses significantly impact rural households’ decision to utilise informal borrowing. Results from the endogenous switching regression model suggest that credit constraint by formal credit sources has no impact on household consumption.

Factors Affecting Farmers’ Access to Formal and Informal Credit: Evidence from Rural Afghanistan

“…Receiving non-agricultural income decreases the probability of participation in informal credit by 112.6 percent. This finding is consistent with Lin et al [34], who found that non-agricultural jobs decrease the demand for informal credit in the rural areas of China.…”

“…At the same time, government and financial institutions should stimulate demand for formal credit through awareness building, financial education, and extension services. This study also affirms the conclusion of Lin et al [34] that formal financial institutions should enhance the size of credit through "innovative credit models".…”

“…The extant literature shows assets, education, distance, and the number of adults to be significant factors of credit constraints [15,18,32,33]. Lin et al [34] found households' non-agricultural income and education to be negatively affecting credit constraints while investigating the effects of demographic factors on credit constraints. According to Sekyi et al [35], the number of children in a household increases the likelihood of credit constraints as having more children increases households' expenditure .…”

Credit Constraints on Farm Household Welfare in Rural China: Evidence from Fujian Province

“…The authors suggest that the Chinese credit markets are operating below their potential. However, Lin, Wang, Gan, Cohen, and Nguyen [35] examined the formal and informal borrowings separately on Chinese rural households and revealed that informal borrowing is affected by the annual household nonagricultural income, children presence, social networks and communication expenses.…”

Crédito Rural E Sustentabilidade: Um Estudo Comparativo Em Pequenas Propriedades Rurais

“…Segundo Linh et al (2019), o acesso ao crédito tem um enorme impacto socioeconômico nas famílias rurais, contribuindo com o aumento da produção, melhoria da renda familiar e, consequentemente, redução da pobreza. Além disso, o acesso ao crédito aumenta a capacidade dos agricultores rurais atenderem às suas necessidades financeiras, tais como, compra de insumos agrícolas e realização de demais investimentos produtivos (LIN et al, 2019).…”