The Effect Of Interest Rate Liberalization Reform On The Rural Formal Financial's Behavior Called "the Iron Law Of Interest Rate Restriction"

Based on a credit rationing model under the condition of asymmetric information,this paper first expands the theoretical framework of financial institutions' credit decision under asymmetric information and proposes that as the reform of the interest rate liberalization to promote,rural financial institutions' marginal credit supply decision-making weighs among the three effects which brought from higher interest rates--the effect of risk compensation,the effect of the structure of borrowers' type and the effect of endogenous processing asymmetric information ability.We want to study whether interest rate liberalization reform has a significant role in breaking “the iron law of interest rate restriction”,which describes the rural formal financial institutions' preference to large farmers in the interest rate restriction policy.According to this,we put forward several hypothesises:(1)In the beginning of the market-oriented interser rate reform,the effect of risk compensation and the effect of endogenous processing asymmetric information ability dominate,but the effect of the structure of borrowers' type dominates in the later,which lead to small farmers benifit more in the beginning while large farmers benifit more in the later.(2)The effect of endogenous processing asymmetric information ability will delay the turning point of small farmers' loan getting from increase to reduce.Then,in the empirical chapters,using the data from the field survey,we respectively test the hypothesis' s mechanisms and conclusions.The empirical results show as follows:First,the impact of interest rate liberalization reform on large farmers' access to credit is a “U” shaped trend.Formal financial institutions become to be less sensitive to the types of farmers in the market-oriented interest rate reform.Small farmers benefit more from the endogenous processing asymmetric information ability.Second,interest rate liberalization reform significantly improved formal financial institutions' capability and technology of processing the endogenous asymmetric information,which significantly delays formal financial institutions' preferences to large farmers.Third,with the advancement of the market-oriented interest rate reform,the effect of risk compensation and the effect of endogenous processing asymmetric information ability increasing the supply of rural formal loan will weaken,and the effect of the structure of borrowers' type negative influence will increase.The empirical results show that interest rate liberalization reform does have a significant role in breaking “the iron law of interest rate restriction” in rural areas,however,due to the shift of the three effects during the process of interest rate liberalization,this role is dynamic and periodical.Finally,this paper gives an important policy implication that it is very necessary to periodically look at the role of interest rate liberalization reform and to strengthen the competition in rural financial market.