| Since the reform and opening up, rural economic develops and rural residents’ income continuously increases in China. The per capita net income of rural residents increases from 133.6 yuan in 1978 to 6977.3 yuan in 2011. However, with the deepening of economic reform in rural areas leading to diversification of distribution main part and income sources, the overall rural income gap continuously expands as rural residents’ income increases. The Gini coefficient of the per capita net income of rural residents rises from 0.2124 in 1978 to 0.3897 in 2011, approaching the international cordon of 0.4. Rural income gap’s expanding has become one of the major shocks on the stability of rural economic development.As rural finance is the core of rural economic resource allocation, effective rural financial market, especially rural credit market plays an important role in improving rural residents’ income, alleviating poverty and narrowing the rural income gap. A reasonable and effective rural financial system should be promoting rural economic development as well as improving the income situation of low-income households to help them break away the "poverty trap", narrowing the income gap in rural areas. Therefore, providing quality and sustainable financial services for rural residents has always been one of the main goals of promoting rural reform and development by governments in many developing countries. But in practical terms, the operating efficiency of the rural financial market has not been effectively improved, and the majority of farmers, especially poor farmers still face rather serious formal credit rationing. To effectively address the issues of rural financial supply shortage, inadequate competition and financing difficulties of rural small-micro enterprises and farmers, the China Banking Regulatory Commission (CBRC) issued the policy "Increase the banking market access in rural areas to better support the construction of the new socialist countryside" at the end of 2006, which aims at moderately reducing the access restriction according to the business sustainable principle, actively supporting and guiding domestic and foreign bank capital, industrial capital and private capital to establish new rural financial institutions such as village banks, loan companies (including small loan company) and farmers’mutual financial cooperatives in rural areas, launches a new round of rural financial reform. At the same time, other various forms of financial institutions have gradually began to get involved or to return to rural financial markets, including the Postal Savings Bank, "three rural issues" finance division establishment of Agricultural Bank, etc. Among them, farmers’mutual financial cooperatives are considered the formal financial institutions with cooperative nature which are the most rural close to farmers. Then, after the relaxation of market access, whether the increasing of rural financial institutions’types and quantity can effectively relieve farmer’s formal credit rationing to optimize the overall farmer’s income distribution is an important practical and theoretical issue of rural finance.Based on this background, this paper attempts to explore and answer the following questions:At the present stage, what types and extent of credit rationing do rural commercial financial institutions and cooperative financial institutions adopt for farmers? How do different types of formal credit funds allocate among different income groups? Whether there are differences of distributional effects of commercial credit and cooperative credit? Which type of financial institution’s credit supply is more conducive to narrowing the income gap between farmers? Therefore, this paper theoretically and empirically studies different types of rural formal financial institutions’credit rationing behavior and distributional effects of formal credit. This paper’s main contents and the related conclusions are as follows:Content 1:different types of rural formal financial institutions’credit rationing behavior.The objective of this section is to determine the types and extent of rural commercial financial institutions and rural cooperative financial institutions’credit rationing, empirically study the mechanism of rural cooperative financial institutions to ease credit rationing. Based on questionnaire designed by Direct Elicitation Methodology, survey results indicate that farmers face five types of formal credit rationing, including quantity rationing, transaction cost rationing, risk rationing and social capital rationing, farmers facing the rural commercial financial institutions’ non-price credit rationing account for 37.21%, taking into account the effective demand for credit, this proportion rises to 61.28%; farmers facing the rural cooperative financial institutions’non-price credit rationing account for 5.63%, much lower than commercial financial institutions’extent of credit rationing. The mechanism of farmers’mutual financial cooperatives to ease credit rationing includes acquaintances social mechanism, community norms punishment mechanism, self-selection mechanism with peer supervision mechanism. Farmers facing commercial financial institutions’quantity rationing, transaction cost rationing, risk rationing or social capital rationing are more likely to apply for loans from farmers’mutual financial cooperatives, participating in farmer specialized cooperatives, the time of joining mutual financial cooperatives and the contact frequency with mutual financial cooperatives have significantly positive effects on the probability of applying for loans and loan size, while the distance from mutual financial cooperatives has a significantly negative effect on the probability of applying for loans and loan size. In addition, farmers’mutual financial cooperatives have provided financial services for farmers who have relatively little wealth.Content 2:the effects of formal credit on farmer’s income in different credit rationing environs.The objective of this section is to estimate the effects of formal credit on farmer’s income in different credit rationing environs. The estimation results of endogenous switching model is applied to show that education years of the head of a household, arable land, wealth, non-farm income, lending experience from formal financial institutions have significantly negative effects on the probability of formal credit rationing; the distance from the nearest formal financial institution has significantly positive effects on the probability of formal credit rationing. Formal credit can significantly increase the net income of farmers, while the effects on the net income of farmers in different credit rationing environs are different:the marginal income effects of commercial credit and cooperative credit for the credit rationed farmers are 1.1414 and 0.8437, more than the marginal income effects for the non-credit rationed farmers (respectively 0.7077 and 0.3316).Content 3:the distributional effects of commercial credit and cooperative credit on farmers.The objective of this section is to investigate the allocation of commercial credit and cooperative credit among different income groups, and to evaluate the distributional effects of commercial credit and cooperative credit. The concentration curves and concentration index of formal credit allocation show that commercial credit funds are focused on high-income farmers and exacerbate the inequality of formal credit allocation; cooperative credit funds are focused on low-income farmers and narrow the inequality of formal credit allocation. The Lorenz curve and the Gini coefficient of income distribution show that commercial credit expands the income gap between farmers, while cooperative credit has played a role in narrowing the income gap between farmers. Quantile regression of the effects of commercial credit and cooperative credit on the net income of farmers shows that the income effect of commercial credit on the low-income farmers is not significant, while the income effect on the middle-income and high-income farmers is significantly positive; the income effect of cooperative credit on the high-income farmers is not significant, while the income effect on the low-income and middle-income farmers is significantly positive. This indicates that rural cooperative financial development can not only improve farmer’s income, but also plays an active role in narrowing the income gap between farmers; while rural commercial finance development has some discriminatory effect including no intention to provide credit services for low-income farmers or in lack of efficiency, therefore it promotes farmer’s income at the expense of widening the income gap between farmers.
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