Social Capital In Rural Private Credit

Private credit has been a very common phenomenon in rural areas for a long time. With its flexible and convenient features in the daily life of farmers, it plays an important role. People called this phenomenon the "lifting money," which is a very common behavior in Yuliangpu Town. For farmers the impact of lifting money varies, and their quality of life is very different. It is this difference that I have interest in most. Yuliangpu Town, a small town located in the eastern part of Inner Mongolia, is an economically underdevelopped region. Borrowers in private credit network are generally living in disadvantaged position in this region. A few borrowers get rich through the acts of lifting money, but most borrowers are still poor. Limitied by resources, research topics and space, I will mainly check on those people struggling to survive in the "lifting money" network. Social capital as an important resource for farmers have had a broad and deep impact in many aspects of life. Do social capital also have impacts in the private credit field?Private credit networks of Yuliangpu Town were studied in detail at the micro level under the guidance of the social capital theory of Linnan in this paper. And the borrowers, lenders, brokers, and various institutional arrangements in this network were described and analyzed deeply. Besides, I used quantitative methods to study the relationship between the social capital and their quality of life, trying to figure out the details and truth in "lifting money" network. However, such detailed study on social capital at the micro level is very rare in the domestic credit and rural folk literature. So I want a real credit networks of rural folk to show up, adhering to the concept that "go to the real world" in the "Street corner society", the "Town", "Rural China" and other classic sociological studies.The behaviors in the rural private credit have its own unique characteristics for researchers. It is generally considered that "lifting money" from others loses one's face. So it is difficult for the researchers to obtain exact datas by the form of household surveys and probability sampling method. Considered the actual situation above, I designed a combination of snowball sampling and determining sampling method and refered to the qualitative interviews to study the region's private credit networks.I summarizes the qualitative interview data, and find that the overall structure of private credit in rural areas is consist of lenders, borrowers, brokers, and various institutional arrangements. Borrowers participate in private credit network because of the lack of social security systems, inadequate formal financial services and basic needs. They see private credit for privacy, mainly due to "lifting money" means the negation of competence and integrity. Lenders lift money to earn interest, and their behavior make most borrowers hard to obtain interest-free loan. Lenders also see "lifting money" for privacy, mainly because they believe "don't show off your gold". Meanwhile, some lenders involved in private credit are reluctant to admit their participation because of the illegal nature. Brokers are the core of the private credit network, and they are living in "network bridge" position. Brokers can be divided into primary brokers and secondary brokers. They should be shrewd and powerful to finish their job. Most institutional arrangements in lifting money network are established by brokers, including omitted interest, "unlimited liability", anticipated payment and flexibility etc.The quantitive discussion about the private credit is analysing the contrast between the usage rate of formal financial channels and private ones, motivations, ability of repayment, the indicators of the living conditions of debtor and the factors that influence the ability of repayment. I found that the motivations of most loans of the farmers whose capital is very little are similar, which are to satisfy the needs of survival; the loans through formal financial channels and funding are significantly less than private credit; lending capacity, the use of loan amount and interest on loans are described by their social capital and the living conditions of different indicators of the borrower is judged by the ability to repay principal which is related to the degrees of principal amount of social capital and farmer's loan purpose, age, ethnicity, education and career.Finally, I believe that private credit network is the lever that controls the gap between the poor and the rich and also strenghtens the impact of Mattew Effect. Therefore, the living status of different households appeared more and more different.