The Nexus between Credit Channels and Farm Household Vulnerability to Poverty: Evidence from Rural China

Abstract

It is well known that finance is at the core of economic activities, and rural finance is an important force for agricultural development, rural economic growth, and farmer income growth, but how rural credit affects vulnerability to poverty of farm households is not yet known. The study on the nexus between the credit channels and vulnerability to poverty can not only realize targeted poverty alleviation but also promote sustainable rural development. This study measures vulnerability to poverty of Chinese farm households by three-stage feasible generalized least squares (FGLS) and tests for the impact of two credit channels on farm household's vulnerability to poverty based on China Household Finance Survey data. We mainly found that the proportion of structural poverty in western areas is comparatively large, and risky poverty of farm households in eastern areas is relatively serious. The high education cost may be an important factor in farm household poverty; the cost-effectiveness of education is higher than that of earnings. Farm household vulnerability to poverty with folk loans is 0.2% higher than that of farm households without private credit; however, this is not significant. Farm household vulnerability to poverty with bank credit is 0.4% lower than households without bank credit, which is significant. For farm households who have a higher level of vulnerability to poverty, the effect of bank credit on reducing vulnerability to poverty is greater. Moreover, we replaced the vulnerability-to-poverty variable with a more rigid indicator to test the relationship between the credit channels and vulnerability to poverty and got the same results as before.

The Impact of Credit on Multidimensional Poverty in Rural Areas: A Case Study of the Indonesian Agricultural Sector

“…This means that the head of the poor farmer household who rec eives credit for agriculture will have the opportunity to move out of poverty. These results are consistent with previous studies by Addury (2019); Coulibaly & Yogo, (2016); Damayanti & Adam, (2015); Sun et al, (2020); Coulibaly & Yogo, (2016). However, although the impact of credit may reduce the probability of poor farmer households emerging from poor status, in fact, the coefficient value is very small.…”

“…In addition, in developing an antipoverty policy in the agricultural sector, it is necessary to consider the movement of the Farmer Exchange Rate (NTP, NilaiTukar Petani), as it describes the indicators of farmer welfare. Credit assistance schemes, socio-economic conditions, asset ownership, arable land area, farmers would be more suitable if a po verty reduction program with direct cash assistance programs could directly benefit farmers (Coleman, 2000;Coulibaly & Yogo, 2016;Elsas & Krahnen, 2000;Fianto et al, 2018;Sun et al, 2020).…”

“…Therefore, this study will examine the level of theoretical suitability regarding the ability of credit in the form of microfinance which according to Idolor & Eriki (2012) will increase the economic capacity of the poor, especially in rural areas, so that they will have a greater opportunity to grow into a large area. Rural financing according to Sun et al (2020) has an important position to boost agricultural development, rural economies, and most importantly farmers' income. It is also believed that empowerment and increasing income in the agricultural sector have a strong influence on poverty reduction (Cervantes-Godoy & Dewbre, 2010;Chen & Ravallion, 2004;Christiaensen & Demery, 2007).…”

Improving productivity among smallholder farmers in Ghana: does financial inclusion matter?

“…This implies that the marginal contribution of credit brings input levels closer to the optimal levels, thereby increasing production and output per head. Furthermore, access to credit is also considered to be an important tool for smoothing consumption, promoting production and reducing vulnerability to poverty especially for poor households (Dobridge, 2018; Thanh et al ., 2019; Sun et al ., 2020). Recently in Ghana, studies that have looked at access to credit and savings among smallholder farmers have been biased towards examining the determinants that influence smallholder access to credit and savings (see for example Asante-Addo et al , 2017; Sekyi et al ., 2019; Nordjo and Adjasi, 2019; Twumasi et al , 2019; Aidoo-Mensah, 2019).…”

Identifying the Spatial–Temporal Patterns of Vulnerability to Re-Poverty and its Determinants in Rural China

“…For instance, Fan and Xie (2014) examined the impact of public transfers on poverty vulnerability, and the results showed that public transfers had little influence on poverty vulnerability. Another study based on the China Household Finance Survey data (CHFS) found that bank credit had a positive impact on reducing poverty vulnerability-especially for farm households (Sun et al, 2020).…”