Financial institutions in rural China: A study on formal and informal credit

This dissertation consists of three parts. The first part is an extensive discussion on China's rural economy, structure of rural financial market and relevant literature. The second part is an analysis of borrowing behavior based on household survey data. The third part reports conclusions.; The first part examines the financial structure of rural credit market in China. The discussion covers both formal sector and informal sector. Different sources of borrowing are discussed: State-owned banks, Rural Credit Cooperatives, poverty alleviation loans, microcredit programs and private lending. Private lending is the largest source of borrowing money for poor households, since neither poverty alleviation loans nor microcredit programs can successfully access the poorest households.; The second part uses data from household survey to analyze the borrowing behavior of rural households. Results have confirmed that poverty alleviation loans are not directed to the poorest groups of population. Private lending is the most important source of credit in rural China. A rural household's outstanding debt level is positively related to its disposable income. Interest charged by formal financial institutions is negatively related to household income. However, interest paid to private lenders cannot be properly estimated. The analysis also shows that a higher level of education leads to a larger amount of borrowing. Production expenditure has significant positive relationship with households' outstanding debt.; The third part is a discussion based on the first two parts. There exists substantial unsatisfied demand for credit in rural credit market. However, supply of credit is very limited. Proper development and regulation of the rural financial market is a necessary condition of higher growth and lower inequality for rural China.