Smallholder preferences and willingness-to-pay measures for microcredit: Evidence from Sichuan province in China

Abstract

Purpose

The purpose of this paper is to examine smallholders’ preferences and willingness to pay for microcredit products with varying attribute combinations, in order to contribute to the debate on the optimal design of rural microcredit.

Design/methodology/approach

Data used in this study are based on a discrete choice experiment from 552 randomly selected respondents. Mixed logit and latent class models are estimated to examine the choice probability and sources of preference heterogeneity. Endogenous attribute attendance models are applied to account for attribute non-attendance (ANA) phenomenon, focusing on separate non-attendance probability as well as joint non-attendance probability.

Findings

The results demonstrate that preference heterogeneity and ANA exist in the smallholder farmers’ microcredit choices. Averagely, smallholder farmers prefer longer credit period, smaller credit size, lower transaction costs and lower interest rate. Guarantor collateral method and installment repayment positively affect their preferences as well. Moreover, respondents are found to be willing to pay more for the attributes they consider important. The microcredit providers are able to attract new customers under the current interest rates, if the combination of attributes is appropriately adjusted.

Originality/value

This study contributes to the debate by assessing the preference trade-off of different microcredit attributes more comprehensively than in previous analyses, by taking preference heterogeneity and ANA into account.

Citation

Ding, Z. and Abdulai, A. (2018), "Smallholder preferences and willingness-to-pay measures for microcredit: Evidence from Sichuan province in China", China Agricultural Economic Review, Vol. 10 No. 3, pp. 462-481. https://doi.org/10.1108/CAER-02-2017-0022