Credit rationing of rural households in China

Abstract

Purpose – In the presence of credit rationing the poor are unable to exploit growth‐promoting opportunities. Using data gathered from a household survey on North China Plain, the purpose of this paper is to find pervasive rationing in the highly regulated formal credit market in rural China. The subsidized credit policies favor local elites instead of the targeted poor strata and earmarked credit programs are less effective. By jointly estimating credit rationing in both the formal and informal sectors, this paper elaborates on the fragmented rural credit market in China where different borrower segments are systematically sorted out across different loan types. Non‐targeted credit programs cannot address income redistribution or sustainable poverty reduction in the presence of such skewed equality and equity.Design/methodology/approach – The basis of this study is a multi‐topic household survey data on rural households in the North China Plain, with 337 rural households being randomly sampled out of five...