Analysis Of Farmers’ Financing Behaviors In Constraints Of Formal Financial Institutions Financing

This investigation is based on alternative financing behaviors in Hunan and Sichuan provinces, a total of22districts,78village households. We conclude that farmers show strong financing needs with significantly different levels; funds are not only dispersed, but also in small amount, short-term as well; the uses for financing are more diversified, mainly to consumer loans.In the context of financial constraints in formal financial institutions, farmers make use of limited resources to select a second-best option, that is financing alternative behavior, which include the endogenous financing:personal savings, working outside the home; external financing:private lending, commercial credit, usury financing and credit assistance mechanisms "fraternity". The highest proportion of financing is endogenous financing, while external financing relatively occupy small proportion, mainly to folk financing.The sequence of financing alternative behaviors is personal savings—migrantly working—lending—commercial credit—fraternity—usury. Personal savings cost least, while this method needs long capital accumulation cycle, with limited space. When confronted with larger demand, farmers can only choose external financing. The superiority of lending is low threshold and flexible periods, but lending is based on the "acquaintance", which means limited amount of funds and non-stricted credit assessment, existing the risk of default. Moreover, commercial credit and fraternity bring dawn to financing with efficient features of convenience and fast. But commercial credit happens between people who often deal with each other; fraternity is lack of perfect rules and regulations.In the case of much-needed funds, usury can provide financing for farmers, but the high interest rates bring severe pressure to farmers, impacting the normal financial.In this regard, I come up with strategies from the aspects of innovating formal financial institutions, developing private financial standardization and improving farmers’ comprehensive quality.