scholarly journals Formal Credit Constraint and Prevalence of Reciprocal Loans in Rural China

2021 ◽  
Vol 4 (1) ◽  
pp. 1-13
Author(s):  
Jianmei Zhao
Keyword(s):  
Unique Feature ◽  
Rural China ◽  
Rural Households ◽  
Credit Market ◽  
Credit Constraint ◽  
Rural Credit ◽  
Rural Credit Market

Abstract The unique feature of the rural credit market in China is the dominance of zero collateral and zero-interest reciprocal lending and its long-term coexistence with the formal loan. This paper investigates the association between formal credit constraint and prevalence of reciprocal loans in rural China. Based on the identification of rural households’ credit constraint status, we examine the effects of credit constraint on the utilization of informal reciprocal loans. We find that formal credit constraint significantly increases rural borrowers’ reliance on reciprocal loans, whereas the “debt of gratitude” imposes an uncertain obligation on rural borrowers, and discourages them from borrowing amongst relatives and friends.

scholarly journals Rural Credit Constraint and Informal Rural Credit Accessibility in China

2019 ◽  
Vol 11 (7) ◽  
pp. 1935 ◽  
Author(s):  
Liqiong Lin ◽  
Weizhuo Wang ◽  
Christopher Gan ◽  
David A. Cohen ◽  
Quang T.T Nguyen
Keyword(s):  
Regression Model ◽  
Rural China ◽  
Rural Households ◽  
Switching Regression ◽  
Probit Regression ◽  
Credit Constraint ◽  
Endogenous Switching Regression ◽  
Rural Credit ◽  
Endogenous Switching ◽  
The Impact

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.

scholarly journals Do Institutional Transplants Succeed? Regulating Raiffeisen Cooperatives in South India, 1930–1960

2021 ◽  
pp. 1-27
Author(s):  
Maanik Nath
Keyword(s):  
South India ◽  
Financial Regulation ◽  
Low Cost ◽  
Credit Market ◽  
Rural Credit ◽  
Market State ◽  
The Government ◽  
Political Economic ◽  
Rural Credit Market

The government in British-ruled India established cooperative banks to compete with private moneylenders in the rural credit market. State officials expected greater competition to increase the supply of low-cost credit, thereby expanding investment potential for the rural poor. Cooperatives did increase credit supply but captured a small share of the credit market and reported net losses throughout the late colonial and early postcolonial period. The article asks why this experiment did not succeed and offers two explanations. First, low savings restricted the role of social capital and mutual supervision as methods of financial regulation in the cooperative sector. Second, a political-economic ideology that privileged equity over efficiency made for weak administrative regulation.

scholarly journals The Analysis Of The Rural Credit Market In Ghana

2010 ◽  
Vol 9 (8) ◽  
Author(s):  
George Owusu-Antwi ◽  
James Antwi
Keyword(s):  
Interest Rate ◽  
Rural Economy ◽  
Banking Sector ◽  
Critical Role ◽  
Credit Market ◽  
Credit System ◽  
Theoretical Understanding ◽  
Interest Rate Policy ◽  
Rural Credit ◽  
Rural Credit Market

The formal banking sector does not satisfy the growing demand for credit, and many borrowers turn to informal loan sources to meet their production and consumption needs. The problem of the rural credit, which includes supplying credit for a rural community for economic growth, is reemerging on the development agenda as a pressing issue. The rural economy is financially very fragile. Lack of credit is a significant and sometimes binding constraint, limiting investment in productivity-enhancing technology and inputs. Rural credit plays a critical role in household strategies to reduce vulnerability. In spite of the contribution that credit entails to the rural development, it has been one of the crucial factors that have not been given proper attention. The purpose of this paper is to identify problems that have hindered the effectiveness of the rural credit market in Ghana. The paper is premised on the theoretical understanding of rural credit markets and applies the framework to investigate the aspect of the rural credit market in Ghana. Improving the rural credit system will help to raise household incomes and reduce poverty and will contribute to the eradication of extreme poverty. The paper identifies high cost, interest rate, lack of collateral, lack of innovation and high delinquency rates as the main factors that have hindered the effectiveness of the rural credit market in Ghana. This paper will interest policymakers to place more emphasis on savings mobilization and to revisit interest rate policy, while providing cheap and adequate credit to small and poor farmers.

Challenges and changes in Indian rural credit market: a review

2019 ◽  
Vol 79 (3) ◽  
pp. 338-352 ◽  
Author(s):  
Sougata Ray
Keyword(s):  
Structural Changes ◽  
State Level ◽  
Credit Market ◽  
National Sample ◽  
Sample Survey ◽  
Valuable Insight ◽  
Content Type ◽  
Rural Credit ◽  
The Government ◽  
Rural Credit Market

Purpose Post-independence, the rural credit market in India has undergone significant structural changes in order to enhance the availability and efficient use of credit. The purpose of this paper is to understand the challenges and changes in the Indian rural credit market in the post-independence period. Design/methodology/approach Using data from the All India Debt and Investment Survey conducted by the National Sample Survey Organisation of the Government of India from 1971–1972 to 2012 and Reserve Bank of India in 1951–1952 and 1961–1962, the study focuses on three important aspect of rural credit market, i.e. the availability, sources and uses of credit. The analysis is based on both the national and state level data and uses the decadal growth rates to explain the changes in the rural credit market. Findings Availability of credit, in terms of volume and number of households indebted, has increased substantially. However, the sharp rise in outstanding debt is a matter of concern. The share of credit from institutional agencies has seen a continuous decline post liberalisation. The non-institutional agencies, particularly the professional moneylenders, continue to be the most preferred sources of credit owing to their flexible nature of operation. Interesting, microfinance has emerged as a major source of credit particularly for the poor rural households. The rise in credit usage for non-income generating activities amongst poor households is another important concern. Originality/value The study highlights some of the most important features and characteristics associated with the Indian rural credit market. An understanding of these issues would provide valuable insight for shaping the future policy responses.

Information asymmetries and agricultural credit

2019 ◽  
Vol 79 (2) ◽  
pp. 217-233 ◽  
Author(s):  
Luis Felipe Zegarra
Keyword(s):  
Legal System ◽  
Credit Market ◽  
Primary Sources ◽  
Information Asymmetries ◽  
Agricultural Credit ◽  
Content Type ◽  
Access To Credit ◽  
Rural Credit ◽  
Collateral Evidence ◽  
Rural Credit Market

Purpose The purpose of this paper is to analyze the functioning of the rural credit market of Lima from 1825 to 1865, paying special attention to the effect of information asymmetries on the access to rural credit. Design/methodology/approach The article relies on primary sources for the study of the early credit market of Lima. In particular, the study relies on a sample of notarized loans for 1825–1865 and on property tax reports, collected from the National Archives of Peru, to determine the effect of information asymmetries, collateral and regional lending on access to credit. The article also analyzes the legal system of Peru during this period to determine whether property rights were well protected and so collateral could be used in the rural credit market. Findings A revision of the legislation shows that the legal system had some deficiencies, but allowed landlords and tenants to use their assets as collateral. Tax reports show that landlords and tenants owned valuable capital that could be used as collateral. Evidence from notarized loans shows that information asymmetries severely restricted inter-regional lending. In Lima, however, notaries played a role as financial intermediaries, providing the information about potential borrowers and allowing landlords and tenants to access credit. As a result, access to credit was significant for landlords and tenants. Originality/value This paper is one of the few historical studies on the role of information asymmetries in the allocation of rural credit in Latin America. It contributes to our understanding of credit markets prior to the creation of banks.

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