Author
Listed:
- Cheng Xiang
- Xiangping Jia
- Jikun Huang
Abstract
Purpose - – Internationally, microfinance run by non-governmental organizations (NGOs) is often considered an important approach to meeting the credit demand of rural households, particularly among the poor. However, the perceived competitions with formal financial institutions and concerns about financial risks in the rural economy have impeded the development of microfinance by NGOs in China. Despite these concerns about NGO microfinance, little empirical evidence has been brought to prove them. The purpose of this paper is to provide empirical evidence of the relationship between NGO microfinance and farmers’ demand for formal and informal credit in rural China. Design/methodology/approach - – The study is based on a household longitudinal data set consisting of 749 households from 40 microfinance villages in rural China. This study draws evidence from China's largest NGO microfinance. Out of the five county branches where China Foundation for Poverty Alleviation has launched institutionalized microfinance since 2006, the authors selected two of them. A random sampling approach was applied in surveying villages and households. In an effort to create impact assessments, the authors surveyed the detailed information on household characteristics and credit access during the period 2006-2009. A panel data is thus structured for the analysis. Findings - – The authors found that the demand for credit in rural China is immense and rising, as formal financial institutions have gradually moved away from less developed regions in rural areas. In its place, informal lending has become a primary source of credit for the poor. However, where NGO microfinance has become available, both formal and informal credit has slowed down. The development and expansion of NGO microfinance did stand up as a substitution for institutional lenders and informal financial networks. Research limitations/implications - – The findings have profound policy implications. First, since the development of NGO microfinance fill the demand for credit in rural China and poses low financial risk, the intellectual bias against NGO microfinance is unwarranted. In particular, the regulations that hamper the development of NGO microfinance should be corrected. Second, informal networks do not appear to be costless. Where NGO microfinance can substitute for them, it can mitigate the financial stresses related to the informal credit market.
Suggested Citation
Cheng Xiang & Xiangping Jia & Jikun Huang, 2014.
"Microfinance through non-governmental organizations and its effects on formal and informal credit,"
China Agricultural Economic Review, Emerald Group Publishing Limited, vol. 6(2), pages 182-197, April.
Handle:
RePEc:eme:caerpp:v:6:y:2014:i:2:p:182-197
DOI: 10.1108/CAER-04-2013-0062
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Citations
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Cited by:
- Hong Sun & Valentina Hartarska & Lezhu Zhang & Denis Nadolnyak, 2018.
"The Influence of Social Capital on Farm Household’s Borrowing Behavior in Rural China,"
Sustainability, MDPI, vol. 10(12), pages 1-20, November.
- Parveneh Shahnoori & Glenn P. Jenkins, 2015.
"Value of E-Banking to Small and Medium-Sized Enterprises,"
Development Discussion Papers
2015-09, JDI Executive Programs.
- Bo Yang & Xiangnan Wang & Tong Wu & Weihua Deng, 2023.
"Reducing farmers' poverty vulnerability in China: The role of digital financial inclusion,"
Review of Development Economics, Wiley Blackwell, vol. 27(3), pages 1445-1480, August.
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