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The welfare impact of microcredit on rural households in China


  • Li, Xia
  • Gan, Christopher
  • Hu, Baiding


Microcredit has gained worldwide acceptance in recent years as a flexible mechanism to expand individuals' (especially the poor's) access to financial services, which is considered as an efficient way to achieve poverty reduction and other social development. A large number of empirical studies have been done to examine the welfare effects of microcredit on the borrowers and such effects are well documented in many other countries such as Bangladesh. However, the impacts of microcredit on China rural households' livelihood are not well documented. This paper attempts to empirically evaluate the impact of microcredit on household welfare outcomes such as income and consumption in rural China. The estimation is based on the difference-in-difference approach which is an increasingly popular method of tackling the selection bias issue in assessing the impacts of microcredit. The study uses a two-year panel dataset, including both primary and secondary data collected through a household survey in rural China. Our empirical results favour the wide belief in the literature that joining microcredit programme helps improve households' welfare such as income and consumption. Despite the optimistic findings on how microcredit has changed the rural households' living conditions, our results show that the vast majority of the programme participants are non-poor, which casts some doubts on the social potential (such as poverty reduction) of China's microcredit programmes.

Suggested Citation

  • Li, Xia & Gan, Christopher & Hu, Baiding, 2011. "The welfare impact of microcredit on rural households in China," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 404-411, August.
  • Handle: RePEc:eee:soceco:v:40:y:2011:i:4:p:404-411

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    References listed on IDEAS

    1. Nguyen Viet Cuong & Minh Thu Pham & Nguyet Pham Minh & Vu Thieu & Duong Toan, 2007. "Poverty Targeting and Impact of a Governmental Micro-credit Program in Vietnam," Working Papers PMMA 2007-29, PEP-PMMA.
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    6. Vigenina, Denotes & Kritikos, Alexander S., 2004. "The individual micro-lending contract: is it a better design than joint-liability?: Evidence from Georgia," Economic Systems, Elsevier, vol. 28(2), pages 155-176, June.
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    11. Coleman, Brett E., 1999. "The impact of group lending in Northeast Thailand," Journal of Development Economics, Elsevier, vol. 60(1), pages 105-141, October.
    12. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
    13. James Heckman, 1997. "Instrumental Variables: A Study of Implicit Behavioral Assumptions Used in Making Program Evaluations," Journal of Human Resources, University of Wisconsin Press, vol. 32(3), pages 441-462.
    14. Miguel Niño-Zarazúa, 2007. "The impact of credit on income poverty in urban Mexico," Working Papers 2007005, The University of Sheffield, Department of Economics, revised Mar 2007.
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    Cited by:

    1. Jing You & Samuel Annim, 2014. "The Impact of Microcredit on Child Education: Quasi-experimental Evidence from Rural China," Journal of Development Studies, Taylor & Francis Journals, vol. 50(7), pages 926-948, July.
    2. You, Jing, 2013. "The role of microcredit in older children’s nutrition: Quasi-experimental evidence from rural China," Food Policy, Elsevier, vol. 43(C), pages 167-179.
    3. Widiarto, Indra & Emrouznejad, Ali, 2015. "Social and financial efficiency of Islamic microfinance institutions: A Data Envelopment Analysis application," Socio-Economic Planning Sciences, Elsevier, vol. 50(C), pages 1-17.
    4. repec:kap:jfamec:v:38:y:2017:i:4:d:10.1007_s10834-017-9531-x is not listed on IDEAS
    5. Mathilde Maîtrot & Miguel Niño-Zarazúa, 2017. "Poverty and wellbeing impacts of microfinance: What do we know?," WIDER Working Paper Series 190, World Institute for Development Economic Research (UNU-WIDER).
    6. Sefa K. Awaworyi, 2014. "The Impact of Microfinance Interventions: A Meta-analysis," Monash Economics Working Papers 03-14, Monash University, Department of Economics.
    7. Gori Maia, Alexandre & Eusebio, Gabriela S. & Silveira, Rodrigo L. F., 2016. "Impact of microcredit on small-farm agricultural production: evidence from Brazil," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235682, Agricultural and Applied Economics Association.
    8. Ian Carrillo, 2013. "The successes and challenges of microfinance," Chapters,in: Handbook of Rural Development, chapter 11, pages i-ii Edward Elgar Publishing.


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