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Are poor able to access the informal credit market? Evidence from rural households in China

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  • Yuan, Yan
  • Xu, Lihe

Abstract

The poor are often excluded from formal credit markets, but few empirical studies in literature have investigated whether the poor are constrained in the informal credit market. This paper uses recent micro data of rural China to answer this question. An instrumental variable model is estimated to account for potential endogeneity issues. Results show that poorer households have lower probability of entering the informal credit market. Further examination shows that the poor are limited by social network and that they have no financial means to invest in their social capital to expand their social network. Our findings shed light on potential solutions of reducing poverty in rural areas.

Suggested Citation

  • Yuan, Yan & Xu, Lihe, 2015. "Are poor able to access the informal credit market? Evidence from rural households in China," China Economic Review, Elsevier, vol. 33(C), pages 232-246.
    • Handle: RePEc:eee:chieco:v:33:y:2015:i:c:p:232-246
    DOI: 10.1016/j.chieco.2015.01.003
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    4. Edwin Arbey Hernández García & Andrés Felipe Oviedo Gómez, 2016. "Mercado del crédito informal en Colombia: una aproximación empírica," Ensayos de Economía 015539, Universidad Nacional de Colombia Sede Medellín.
    5. Harold Vásquez & María del Mar Castaños, 2018. "Knowledge, Information, and Financial Decisions: Why Do People Choose to Finance from Informal Credit Markets?," Investigación Conjunta-Joint Research, in: María José Roa García & Diana Mejía (ed.), Financial Decisions of Households and Financial Inclusion: Evidence for Latin America and the Caribbean, edition 1, volume 1, chapter 9, pages 279-308, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    6. Jiang Du & Miao Zeng & Zhengjuan Xie & Shikun Wang, 2019. "Power of Agricultural Credit in Farmland Abandonment: Evidence from Rural China," Land, MDPI, Open Access Journal, vol. 8(12), pages 1-14, December.
    7. Tadesse, Getaw & Zewdie, Tadiwos, 2019. "Grants vs. credits for improving the livelihoods of ultra-poor: Evidence from Ethiopia," World Development, Elsevier, vol. 113(C), pages 320-329.
    8. Liping Gao And Hyeongwoo Kim, 2016. "Testing The Predictability Of Consumption Growth: Evidence From China," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(3), pages 21-30, September.
    9. Cull,Robert J. & Gan,Li & Gao,Nan & Xu,L. Colin & Cull,Robert J. & Gan,Li & Gao,Nan & Xu,L. Colin, 2015. "Dual credit markets and household access to finance : evidence from a representative Chinese household survey," Policy Research Working Paper Series 7454, The World Bank.
    10. Edgar E. Twine & Elizaphan J. O. Rao & Isabelle Baltenweck & Amos O. Omore, 2019. "Are Technology Adoption and Collective Action Important in Accessing Credit? Evidence from Milk Producers in Tanzania," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 31(3), pages 388-412, July.
    11. Liqiong Lin & Weizhuo Wang & Christopher Gan & Quang T. T. Nguyen, 2019. "Credit Constraints on Farm Household Welfare in Rural China: Evidence from Fujian Province," Sustainability, MDPI, Open Access Journal, vol. 11(11), pages 1-19, June.
    12. Angela Hilmi, 2019. "The Alfredo Namitete Agroecology Credit System: A New Business Model That Supports Small-Scale Lending," Sustainability, MDPI, Open Access Journal, vol. 11(15), pages 1-20, July.
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    14. Ming Guan, 2016. "Income diversification of Chinese rural households after they rent out land," Cogent Business & Management, Taylor & Francis Journals, vol. 3(1), pages 1265803-126, December.
    15. Twine, Edgar & Rao, Elizaphan & Baltenweck, Isabelle & Omore, Amos, 2015. "Credit, Technology Adoption and Collective Action in Tanzania’s Smallholder Dairy Sector," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 204198, Agricultural and Applied Economics Association.
    16. Bunga Hidayati & Naoyuki Yamamoto & Hideyuki Kano & Agus Suman & Asfi Manzilati, 2017. "Social Capital in Moneylenders Phenomenon in Blimbing Traditional Market Malang Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 57-61.
    17. P. I. Omede, 2020. "A Tale of Two Markets: How Lower-end Borrowers Are Punished for Bank Regulatory Failures in Nigeria," Journal of Consumer Policy, Springer, vol. 43(3), pages 519-542, September.

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    More about this item

    Keywords

    Informal credit; Social capital; Formal credit constraint; Poor; China;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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