A Study On The Formal Credit Constraint To The Peasant Household In China

Since the reform of China's rural financial system, to some extent, the efficiency of formal financial institutions as well as coverage of rural finance loans have been improved. However, in recent years, some research shows that farmers are still facing a relatively serious credit constraints. Credit constraints are not only from the formal credit rationing, but also from the borrowers themselves to form suppressed demand due to demand based credit constraints. The paper investigates the real causes leading to the formal credit constraints, analyses the important factors affecting formal credit constraints, thus, give the policy recommendations to solve the problem of credit restraint, to promote the healthy development of rural financial markets.Based on the 2009"China's rural financial investigation"of the special home survey data, using the probit model of identified demand, this paper has the empirical research on the farmers formal credit constraints, tests the different factors affecting the demand and supply credit constraints. According to the empirical test results, the paper draws the following several major conclusions: first, the affection of the land size is not significant to the demand and supply credit constraints, which is consistent with our expectations, the land is still not a valid collateral. Second, the income and asset situation of famers is not the measure of wealther the formal financial institutions decide to give the loan. Third, in rural China, farmers are conservative and risk preferences, there is no increase with age changes. Fouth, popularize the microfinance of the group guarantees is conducive to reducing the supply based credit constraints. Fifth, rating credit of the farmers, giving the loan credit card or other proof of the credit situation is conducive to reducing the demand and supply based credit constraints. Sixth, whether the farmers and financial institutions have relationships is not significant to affect the formal credit constraints, relationships is not the decisive factor determining credit constraints. There is still a cognitive bias on the screening mechanism to the formal loans, making them relatively passive when applying for loans, resulting in demand based credit constraints.The above conclusions give some important issues to solve the credit constraints in the rural formal financial markets. Reduce the demand based credit constraints, available from the following three aspects: reduce the transaction costs of farmers applying for loans; change the cognitive bias of rural households, reducing the system of credit rationing as a result of suppressed demand; enhance awareness of household borrowing, reducing the demand based credit constraints as a result of risk aversion. Reduce the supply based credit constraints, available from the following three areas: address the problem of asymmetric information, and promote diversification of rural financial institutions and the adjustment mode of operation; allow the right to land contractual management have the mortgage, achieve the mortgage function of land; further relax government credit controls, to ensure the liberalization of interest rates. In addition, the formal financial institutions need to improve the existing loan products and services, based on the characteristics of household demand credit, to stimulate and release the potential demand for formal credit.