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Social networks and informal financial inclusion

Author

Listed:
  • Chai, Shijun

    (School of Economics, Xinyang Normal University)

  • Chen, Yang

    (Division of Economics, Xi'an Jiaotong-Liverpool University)

  • Huang, Bihong

    (Asian Development Bank Institute)

  • Ye, Dezhu

    (School of Economics, Jinan University)

Abstract

Using the 2011 China Household Finance Survey (CHFS) database, this article explores the heterogeneous impacts of social networks on informal financial inclusion for rural and urban households and identifies two mechanisms through which the informal institution changes households’ financial market decisions. The IV-Probit and IV-Tobit estimation results indicate that social networks significantly increase the probability of the household’s informal financial market participation, the size of informal lending and financing and the ratio of informal lending over the total household assets. By reducing risk aversion and the precautionary saving, we find social networks play a larger role in the urban area of China compared to the rural counterpart. And notably, the effects of informal institution, shaped by various cultural factors and kinships, remain strong and persistent even with formal institutions being firmly established.

Suggested Citation

  • Chai, Shijun & Chen, Yang & Huang, Bihong & Ye, Dezhu, 2016. "Social networks and informal financial inclusion," RIEI Working Papers 2016-04, Xi'an Jiaotong-Liverpool University, Research Institute for Economic Integration.
    • Handle: RePEc:xjt:rieiwp:2016-04
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    Cited by:

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    2. Ozili Peterson K., 2021. "Financial Inclusion: Globally Important Determinants," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 17(4), pages 1-11, December.
    3. Liqun Shao & Yimeng Zhou & Haibin Chen & Yu Wang, 2020. "Effects of Social Network on Herder Livestock Production Income and the Mediation by Fund Loans," Agriculture, MDPI, vol. 10(12), pages 1-16, December.
    4. Xuluo Yin & Xuan Xu & Qi Chen & Jiangang Peng, 2019. "The Sustainable Development of Financial Inclusion: How Can Monetary Policy and Economic Fundamental Interact with It Effectively?," Sustainability, MDPI, vol. 11(9), pages 1-14, May.
    5. Yevgeny V. POPOV, 2018. "Economic Sociotronics of the 21st Century," Upravlenets, Ural State University of Economics, vol. 9(2), pages 2-5, April.
    6. Thanh-Tung Nguyen & Trung Thanh Nguyen & Ulrike Grote, 2020. "Credit and Ethnic Consumption Inequality in the Central Highlands of Vietnam," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 148(1), pages 143-172, February.
    7. Huang, Bihong & Shaban, Mohamed & Song, Quanyun & Wu, Yu, 2018. "E-commerce Development and Entrepreneurship in the People’s Republic of China," ADBI Working Papers 827, Asian Development Bank Institute.

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    More about this item

    Keywords

    Social Networks; Informal financial inclusion; Risk attitude; Precautionary saving; Formal institutions;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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