Social Trust Formation and Credit Accessibility—Evidence from Rural Households in China

Abstract

Trust as a form of social capital plays an important role in improving the cooperation between agents, especially in credit lending activities. Trust building has attracted significant research interest, and gift giving has been shown to be one of its main drivers. Nonetheless, the mechanism of gift giving in the formation of trust networks and the channels through which gift giving and trust affect cooperation require further investigation. In this paper, we first separate social trust into community trust and personal trust, and we examine how gift giving affects the formation of each level of trust. We then explore how trust and gift giving affect rural households’ access to formal and informal sources of credit. Our results show that gift giving mainly helps in forming trust at the personal level rather than the community level. In turn, personal and community trust can facilitate access to informal and formal sources of credit, respectively. In addition, personal trust facilitates access to informal loans for consumption and medical expenses but not production. Overall, our findings show that gift giving is mainly used to build personal trust which facilitates access to informal lending for risk-sharing purposes.

Increasing Solvency by Moderating Social Capital: A Study on Group Lending Model From Community Empowerment Trust Fund – Indonesia

“…The results of this study are in line with (Zhang et al, 2020;Okello Candiya Bongomin et al, 2017;Sanrego & Antonio, 2015) that the values of Social Capital embedded in the group affect the behavior of the poor in paying off their debts. 5) The beneficiary group affects repayment capacity in the opposite direction.…”

“…Several studies show that trust is significantly and positively related to economic growth and vice versa; the government's success in realizing a better level of economic development can strengthen people's social trust. Zhang et al (2020) prove that trust as a form of social capital plays an important role in increasing cooperation between agents, especially in credit lending activities. The results show that gift-giving is especially helpful in establishing trust at the personal level rather than at the community level.…”

“…Several previous studies that provide evidence that social capital had a positive effect on repayment include (van Bastelaer & Leathers, 2006;Zeller, 1998;Cassar et al, 2007). In addition, research on the role of social capital in the group lending model includes (Brown et al, 2011;Al-Azzam et al, 2012;Sanrego & Antonio, 2015;Okello Candiya Bongomin et al, 2017;Zhang et al, 2020). Okello Candiya Bongomin et al (2017 examined the mediating role of social networks in the relationship between financial intermediation and financial inclusion of poor households in rural Uganda.…”

Using an Artificial Neural Networks Experiment to Assess the Links among Financial Development and Growth in Agriculture

“…Ref. [15] showed that gift giving is mainly used to build personal trust, which facilitates access to informal lending for risk-sharing purposes. Ref.…”