A Study Of Willingness To Lend And Rural Credit Risk Based On The Social Capital

In 2016,the No.1 Document of the Central Committee in China pointed out that,strengthening the education of farmers in financial risks and the protection for financial rights can be an effective way to enhance farmers' knowledge of financial risks and to improve their ability for the identification of illegal fund-raising and other financial frauds.Similarly in 2017,the No.1 Document mentioned rural financial risks again,which indicates that the central government has raised the control of rural financial risk to an unprecedented strategic height.The credit risk problem is particularly prominent in rural finance,so it has also received extensive attention as an important part of rural financial risk.Nevertheless,it still takes time for the implementation from local governments.Currently,besides the common cases of illegal fund-raising and financial fraud,private lending based on social capital is a second source of rural financial risks.This study will focus on rural credit risk arising from private lending.In rural areas,private lending has greater advantages in aspects of financing cost and financing efficiency compared with formal finance.It is of great importance for both academic research and policy making of rural finance to identify the problems and clarify the mechanisms.Therefore in this thesis,innovatively from the perspective of lenders,I study whether social capital will effectively affect farmers' willingness to lend and will effectively control rural credit risk with the method of social survey and economic experiment,and put forward a few policy recommendations accordingly.Firstly,based on literature review and theoretical modeling,two dimensions of the social capital are constructed,which are relationship between lenders and borrowers and social network scale of borrowers.Then the questionnaire and the field experiment are designed,followed by the sample selection procedure,as for which four counties of rural areas with certain economic gradients in Zhejiang Province were selected.303 valid samples were obtained in total.All the above constitutes the research foundation of the thesis.Next are the empirical analysis.First of all,multiple regression analysis is adopted to study the impact of social capital and other factors on the willingness to lend.Results indicate that three social capital variables,including deep affection,reciprocity and borrowing from party members or cadres have significantly positive effect on thevariable willingness to lend.In addition,it is found that different borrowing purposes and lending amounts have different effects on willingness to lend,and that the variables social capital,similarity and risk attitudes of lenders vary among different groups.Secondly,empirical analysis on credit risk is carried out in this thesis.Results suggest that three social capital variables,including deep affection,reciprocity and borrowing from party members or cadres have significantly negative effect on the variable credit risk,whereas risk attitude has a significantly positive effect on credit risk.Moreover,the effect of different lending purposes and amounts on credit risk varies.In addition to the risk attitude of the lender increasing the credit risk in each group,the impact of social capital and the characteristic information of borrowers vary among sample groups.Thirdly,through comparative analysis of the above two empirical results,it is found that social capital variables that are statistically significant are basically coincident in both full sample and subsamples,which means that the coincident factors can not only increase the willingness to lend,but also reduce the risk of lending default.Therefore,it can be concluded that even in the case of different borrowing purposes and amounts where social capital and other factors have different effects on willingness to lend,the social capital index that the lender mainly refers to is still effective in reducing the credit risk.Meanwhile,the subjective factors of lenders,including risk attitude and similarity of the lender,can't help control the credit risk for farmers,even in some cases they improve the default rate.In addition,when considering their willingness to lend,farmer lenders tend to pay less attention to the borrowers' characteristic information which can reduce credit risk to some extent,including the permanent residence,income level and education level.Finally,policy recommendations are obtained based on the above empirical analysis.Firstly,the government should strengthen the financial knowledge of farmer lenders and enhance the awareness of their financial risk prevention,thus guide the lenders to think more about borrowers' repayment ability in addition to social capital factors when lending.Secondly,the government should actively guide village units to set up private lending and mutual aid organizations,and help farmer lenders reinforce the examination procedure of borrowing to reduce the lending risk.Thirdly,the government should promote the land management right reform which can contribute to reduce the default loss of farmer lenders.