Abstract
This paper examines the factors influencing the accessibility of microcredit by rural households in China. The empirical analysis utilises logistic regression, with data collected through a household survey carried out in one province in China. A total of twelve household-level factors are identified as determinants in households’ access to microcredit, including educational level, household size, income, among others. In addition to these, results indicate that rural households’ accessibility to microcredit can also be impaired by the supply-side factors (e.g., interest rates, loan processing time). The empirical analysis establishes a positive relationship between households’ credit demand and access to credit. The paper thus concludes that households should be encouraged to raise capital requirements (for example, create investment opportunities in on/off farm activities) to increase their demand for credit, which can enhance their access to microcredit. In addition, microcredit institutions (such as the Rural Credit Cooperatives) should improve their lending schemes and micro loan products to better suit the diversified needs of the rural population.
Highlights
Credit has been increasingly accepted as a powerful instrument to help poor people invest and break out of „vicious cycle‟ of poverty because it has the potential of improving the users‟ incomes and savings, and enhancing capital accumulation and reinforcing high incomes (Atieno, 2001)
The households‟ access to microcredit is strongly associated with GEND, EDU, SELFEMPL, FARMSZ, LOCATN, DIST, SAV, ATTITUD, and ALTER because the chi-square tests on these variables are all significant at the 10 percent level or better
This study examines the key factors that influence the accessibility of microcredit by rural households in China
Summary
Credit has been increasingly accepted as a powerful instrument to help poor people invest and break out of „vicious cycle‟ of poverty because it has the potential of improving the users‟ incomes and savings, and enhancing capital accumulation and reinforcing high incomes (Atieno, 2001). Traditional financial institutions (FIs) are reluctant to serve the poor mainly because poor people fail to meet the selection criteria such as the requirement of physical collateral set by FIs. The perceived high risks and costs arising from processing and servicing unsecured small loans make FIs shy away from financing the poor, mainly due to the concern of financial viability. Lacking access to formal credit, most poor and low-income people continue to rely on meagre self-finance or informal credit, which limit their ability to actively participate in and benefit from the development process. By removing obstacles in traditional lending (such as collateral requirement), microcredit largely facilitates the poor‟s access to institutional credit when they need financial support
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