The demand for credit, credit rationing and the role of microfinance: Evidence from poor rural counties of China

Abstract

Purpose

The purpose of this study is to examine the demand for credit and credit rationing conducted by formal, informal and emerging microfinance lenders in the four poor counties of China.

Design/methodology/approach

This paper extends the existing studies on credit rationing in rural China by comparing the determinants of credit rationing by three different lenders, the formal lenders rural credit cooperatives (RCCs), the informal lenders and the new microfinance institutions (MFIs).

Findings

MFIs are capable of reaching out to the even poorer households if they develop the loan products based on the income and expenditure flows of these households.

Research limitations/implications

The determinants of credit rationing by three types of institutions are estimated separately.

Practical implications

RCCs in China shall change their policy of discrimination against female-headed households. RCCs shall also simplify the loan application procedures and assess the clients based on their repayment capacities rather than the age or assets alone. RCCs could learn from MFIs to use incomes from migrant workers as a criterion to assess the loan applicants.

Social implications

gender equity for loan access.

Originality/value

This paper extends the existing studies on credit rationing in rural China by comparing the determinants of credit rationing by three different lenders, the formal lenders (RCCs), the informal lenders and the new MFIs.

Citation

Cheng, E. and D. Ahmed, A. (2014), "The demand for credit, credit rationing and the role of microfinance: Evidence from poor rural counties of China", China Agricultural Economic Review, Vol. 6 No. 2, pp. 295-315. https://doi.org/10.1108/CAER-07-2012-0076