Research On The Contagion Effect Of Credit Risk Of Farmers’ Group Loan

As the main innovative mode of microfinance,the group loan uses the joint guarantee between multiple lenders to replace the mortgage and guarantee required by a single lender,in order to solve the problems of information asymmetry between farmers and financial institutions and insufficient mortgage guarantee for farmers,to ease the credit constraints of farmers,and to promote inclusive finance in rural areas provides an achievable way.Although the group loan has provided new ideas for solving the “loan difficulties” of agricultural entities,with the implementation of the group loan business,there have been successive incidents of group loan defaults.Farmers,as the main borrowers of group loans,have the characteristics of bounded rationality.When faced with uncertain information and environment,their credit behavior has great uncertainty.In addition,due to the existence of joint responsibility,there is a guarantee connection between the group members.In addition to the guarantee connection,there is also a social connection between the group members.The existence of complex associations makes the credit risk of group members vulnerable to the default risk of other members in the joint insurance body,and also affects the default risk of other members.This makes it possible for the occurrence of credit risk contagion within the group.Furthermore,the joint insurance groups are mostly composed of farmers in the same area and engaged in similar industries.The close contact between group members in the same region may make default imitation more likely.Groups whose members are engaged in similar industries are more vulnerable to the impact of industry prosperity and external macroeconomics,and the credit risk of farmers shows a certain regional dependence effect.Therefore,exploring and analyzing the evolution of the credit behavior of group members,the process of contagion and diffusion of credit risk within the group,and the regional dependence effect of the credit risk of group loans are all important issues that need to be solved urgently.This is also the key to promoting the sustainable and healthy development of group loans in China.This paper follows the research ideas of: credit risk measurement of group member (?)credit behavior evolution of group member (?) credit risk contagion within the group (?)regional dependence effect of group loan credit risk (?) policy recommendations.Guided by bounded rationality,evolutionary game theory,prospect theory,complex adaptive theory,this paper uses the credit data of 5,462 farmers’ group loans from a large NGO company in China to analyze the evolution of group members’ credit behavior,the contagion of credit risks within groups,and the regional dependence effect of group loan credit risks.The methods used in this paper include the ADASYN-BPNN-Focal Loss model,the Cellular Automata model,the logistic-Inde-INLA model with independent random effects in the region,and the logistic-CAR-INLA model with spatial random effects in adjacent regions.It is expected to provide countermeasures and suggestions for improving the operation mechanism of group loans and promoting the sustainable and healthy development of group loans in China,ultimately promoting inclusive finance and realizing rural revitalization.The main conclusions of this study are as follows:(1)Evolution of the credit behavior of joint guarantee members.Enhancing the perceived value of bank penalties of group members is an effective strategy to promote the evolution of group members to contract performance;improving the perceived value of intra-group punishment for group members can effectively alleviate the phenomenon of repeated defaults on joint guarantee loans;the lower the perceived value of the loan cost,the more inclined to choose the performance strategy,and the reduction of the perceived value of the loan cost can be achieved indirectly by increasing the perceived value of the bank penalty and the penalty within the group.(2)Credit risk contagion within the group.Under the circumstance that banks and government departments do not take any rescue measures,when members of the group encounter a sudden increase in default risk due to operational difficulties or changes in the macro environment,even if other members with lower default risk in the group rescue members whose default probability is higher than the risk threshold,the consequence of rapid contagion of default risk among group members cannot be avoided;when the default probability of group members is greater than the default threshold,and the bank and the government immediately bailed them out,the default probability of high-risk group members will decrease rapidly in a short period of time;when the bank and the government do not immediately rescue the group members whose default probability is greater than the default threshold,but wait and see for a period of time,the credit risk contagion effect shows an inconsistent change trend depending on the waiting time.The earlier the rescue measures are taken,the better the effect of blocking credit risk contagion.(3)The regional dependence effect of the credit risk of the joint guarantee loan.The default behavior of the farmers will be affected by the random effect in the region,and the random effect in the region is helpful to identify the default behavior of the farmers;the default behavior of farmers will be affected by the random effect of adjacent areas,and the random effect of adjacent areas is helpful to identify the default behavior of the farmers;the credit scoring models that include random effects in the local and the adjacent areas both can significantly improve the accuracy of credit risk identification for farmers.Among the key factors affecting the credit risk of farmers,the “Engels coefficient of rural households” has a negative and significant impact on the default status of farmers.This shows that the decision of microfinance institutions to locate their client groups in low-and middle-income groups in rural areas for a long time is correct.The default risk of group loans for consumption purpose is higher.Therefore,microfinance institutions should focus on the credit risk identification of group loan customers for consumption,and strictly review before and supervise after the loan.Finally,based on the research conclusions,this paper puts forward the following policy suggestions: strengthen the construction of the rural credit system,improve the overall credit level of farmers,and promote the evolution of group loan members’ behavior decisions to non-defaulting;establish a timely rescue system for financial institutions and other departments,and timely block the credit risk infection within the group;build a multi-model agricultural industrialization complex,give full play to the driving ability of local leading enterprises,and improve the risk resistance ability of group loan farmers at the regional level;improve the credit rating system and improve the credit risk control mechanism according to local conditions;the positioning of group loans to serve low-and middle-income groups in rural areas remains unchanged.