Credit Constraint, Household Social Network And Farmers' Credit Behavior

In recent years, Chinese rural economy has achieved rapid development, and farmers' living standard has been greatly improved, at the same time farmers also have strong credit demands. While farmers are lack of effective guaranty, information asymmetry exists between farmers and formal credit institutions, and formal credit institutions make maximizing the benefits as operation guide. So that in rural credit market the formal credit institutions implement credit rationing on farmers, the absence of formal credit is serious, and farmers generally face credit constraints. While China is a relational society, native complex in rural areas is richer, and private lending based on social network is extremely active in rural credit market, which largely makes up for the lack of formal finance. This study is focused on the problems of whether farmers' household social network can ease their credit constraint plight, and what effects credit constraint and social network play on farmers' credit behaviors.Firstly, we use theoretical research methods to sort, classify and summarize theories and research results of credit constraint and social network at home and abroad, and then propose the limitations of historical research, which contributes the theoretical foundation and prerequisite for the later empirical part. Then we put forward our research hypotheses. Using empirical research methods and based on the data of rural households of Chinese Household Finance Survey in 2011, we conduct a descriptive statistical analysis and build limited dependent variable models like probit model and tobit model, then empirically analysis and verify the relationships among credit constraint, social network and credit behavior, and the impact of other household characteristics on credit constraints and credit behaviors.We found that, household social network has a significant negative effect on credit constraint, which can ease farmers' credit constraint plight significantly; credit constraints have a negative impact on formal credit behavior, while a positive impact on informal credit behavior, farmers facing credit constraint plight usually make up for their credit demand through informal finance. Social network has a positive effect on farmers' formal credit behavior and informal credit behavior, and the influence on formal credit behavior is greater than informal credit behavior. The effect of social network on informal credit behavior comes out some interesting ‘threshold' effect: based on natural ‘trust', farmers' informal credit behavior has a very low threshold, the restrict of security ability is small; when it comes to credit scales, the function of social network comes out as a debt guarantee capacity. Formal credit institutions firstly focus on farmers' ability of debt guarantee reflected by direct factors such as social network, household asset, household income and whether head of the household is a party member. From other family characteristics, many factors play different or opposite effect on formal credit behavior and informal credit behavior, which can help us understand farmers' formal credit behavior and informal credit behavior better. On this basis, we propose several suggestions to improve the rural credit market system from the perspective of social network: 1) build and improve farmers' social network systems; 2) improve the rural credit system and construct credit guarantee mechanism; 3) guide the development of informal finance and improve the service ability of formal finance, which we hope to provide some ideas for rural financial reform.