CSSN-China's Rural Householders Borrowing from the Formal and Informal Credit Market

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China's Rural Householders Borrowing from the Formal and Informal Credit Market

Author : Source : The Journal of Quantitative & Technical Economics No.1(2014) 2014-01-07

Abstract: Using the rural survey data in 2009, this article analyzes rural households’ credit needs and the difference of their borrowing behavior from the formal and informal credit market. The Credit needs and its constraints are quite widespread. Informal borrowing dominates overwhelmingly in the rural credit market, and absolute most borrowing is an interest-free credit. The formal and informal credit markets are almost independent each other and the former produce neither beneficial influence nor suppressive effect on the later. Difference from informal financing depending on the credit demand, the lending from Rural Credit Cooperatives derails market and subjects to administrative planning. In order to reduce credit constraints of rural households, the government should guide the informal market’s development and innovation; encourage households to develop rural mutual funds organizations. Meanwhile, measures should be taken to promote formal finance producing positive effects on informal finance, and strengthen the market orientation of rural credit cooperatives.

Key words: Rural Households Borrowing, Formal Credit Market, Informal Credit Market

Editor: Yu Hui