Formal Credit Of Farmer Households In Poverty Stricken Areas And Its Implications For Households Income

The poverty reduction in China has not only contributed to the social stability and the welfare of the Chinese people,but also to the progress of the global poverty alleviation.The Communist Party of China has made solemn commitment to the entire nation to achieve the complete eradication of poverty by 2020.The entire Party is united to lead the people into this great battle.As an indispensable resource for the operation of the modern economy,finance is undoubtedly an important tool for achieving long-term poverty alleviation.seven ministries and commissions,including the People's Bank of China,have issued implementations on financial support for precise poverty alleviation in 2014 and 2016 respectively.All of these measurements tend to improve the level of financial assistance to farmers.Therefore,government-led formal credit takes the poverty alleviation as an important historical mission and responsibility.President Xi Jinping has repeatedly stressed that poor natural conditions,lagging industrial development and high incidence and depth of poverty in western poverty-stricken areas are the priority in our work of getting rid of poverty.So,under the background of the government vigorously promoting the development of Inclusive Financing and the financial poverty alleviation project,the internal linkage relationship between financial development and farmers' income is bound to undergo new changes,this study focuses on:(1)what influences farmers' formal credit related decisions,i.e.,what influences farmers' willingness to borrow and their actual behavior;(2)whether a sustained increase in the supply of financial credit will have an impact on the farmers income in the poverty stricken regions.If so,what are the mechanisms by which formal credit affects farm household income.What are the specific moderate pathways contributing to the farm households income increase;(3)is there consistency in the impact of government-led formal credit on farm household groups,based on the reality that farm household groups are already fragmented?If there are differences,do they benefit poor or rich farmer households?(4)this study explored the factors that may have potential impact on the farmer household income.Which factors can accelerate or decelerate the income increasement of farmer household synergistically with formal credit?Answers to the above questions help us to clarify the link between formal credit and farmers' income and helps the government to identify key points for rural financial poverty alleviation and improve institutional arrangements.Based on the theoretical analyses and micro-tracking surveys data from 710 farmer households in seven national-level poverty-stricken counties in four provinces(Yunnan,Guizhou,Shanxi and Gansu)in the western China,this study exhibits:(1)Most of the credit of farmer households in the poverty stricken areas comes from interest-free loans among relatives and friends.Although the frequency of formal credit is lower than informal lending,it shows an increasing trend.In addition,the use of formal credit is mainly for subsistence,supplemented by production and operation.Bank credit interest rates show a clear downward trend,while credit union interest rates show no significant change.(2)The age of the head of the household,the number of unhealthy people in the household,the number of seniors,whether received vocational training and income from agricultural production have significant positive impact on the willingness to take formal credit,whilst the impact of the number of land plots is negative.The number of unhealthy people,the number of seniors,the number of children,the number of migrant workers,the number of family members,the original value of productive fixed assets,membership of cooperatives and the cost of networking have significant positive effect on the amount of received formal credit,while the number of land plots has significant negative effect.(3)Overall,the use of formal credit has a significant positive effect on farmer household income,but it has not yet resulted in a sustained income increase.From the structural point of view,formal credit has a significant positive effect on both business income and wage income,but not on property income or transfer income,with the enhancement effect on business income being stronger than that on wage income.Furthermore,our analysis based on the mediating effects model shows that formal credit raises local wage income and agricultural business income by increasing the number of migrant workers and agricultural inputs.The mediating effects of the two paths account for 1.463%and 12.444%of the total effect.(4)In terms of heterogeneity,as the income of the farmer household increases,the income enhancing effect of formal credit is greater,especially for the local elite,where the effect is most pronounced.In addition,the use of formal credit does not contribute to the income enhancement of poor households,while it has significant effect on non-poor households.In view of this,differences in the income-enhancing effects of formal credit across farmer households undoubtedly widen the income gap within farmers.(5)Capital endowment characteristics are important determinants for the diversified income enhancement effects within farmer household groups after receiving formal credit.In this paper,capital endowment is illustrated as three dimensions corresponding to human capital(education level),material capital(original value of fixed assets and land area)and social capital(membership of the cooperative).The interaction of the three dimensions with financial capital is used to explore the linkage in-between.This study revealed that the income enhancement effect is greater for farmers with higher levels of education.The larger the land area and the original value of productive fixed assets owned by the farmer,the greater the income enhancement effect.Income enhancement effects are higher for farmers who are members of cooperatives than for those who are not.Based on the above conclusions,this study puts forward the following policy implications:First,we suggest improving both the quantity and quality of financial services for poverty stricken rural areas.Second,we suggest enhancing the precision of policies and promoting the coordination between different policies.The government should strengthen the coordination of financial and other policies to cultivate local special industries and to create an example for the other regions.The local governments are suggested to continue the rural reform and to mobilize the various assets of farmer households.Third,multiple measurements need to be combined to improve the efficiency of credit use for poverty alleviation.The government needs to build industries according to local conditions.In this process,it is imperative for the government to prevent formal credit from further widening the income gap within farming households.