Can poor farmers afford higher micro-credit interest rates than the un-poor?

Abstract

Purpose – The purpose of this paper is to test whether there is higher return rate of investment for poor farmers than for un-poor farmers and to discuss its implication for poverty reduction microcredit rate policy. Design/methodology/approach – By using the household-level data of six provinces of China, farmer household production function is used in this paper to estimate the investment return rate of farmer. Findings – The paper indicates that regardless which kind of grouping standard is adopted, the investment return rates of poor farmer households in general are far lower than the non-poor. In general, the richer a farmer household, the higher is the return rate of his household productive operations. Practical implications – The study of this paper reminds policy makers that poverty reduction microcredit rate should really take endurance capacity of poor farmers for credit rate into accounting because of the low return rate of their family investment. Exorbitant credit rate should be avoided to protect the credit right of poor farmers. Originality/value – There is seldom study on the comparison of return rates of family operation investment between poor and un-poor farmers; there is also unenough empirical study on the rationality of high interest rate on poor households from the return rate of investment point of view. The authors expect this paper will have some contribution on these two points.