An Analysis Of Rural Households’ Lending Behavior In Informal Credit Market

The construction of "China dream" cannot do without the development of rural economy. The steady and healthy development of the rural economy needs sufficient financial support. With the deepening of the rural economic system reform in China, farmers’ demand for money is growing, but the formal financial institutions in rural areas is gradually shrinking, and unable to meet the needs of the rural economic development. Lack of rural financial supply became the bottleneck of the rural economy development in China. Therefore, the study of the capital supply problems in rural areas is of great theoretical and practical significance.In the countryside, kinship and geography determines the dominant of farmers’ informal credit behavior. In recent years, the scale of China informal credit market is expanding. To some extent, it makes up for the lack of formal financial institutions. Compared to the normal financial institutions, farmers tend to borrow from friends, whose lending is simple and cheap, to solute funding needs. Based on this, the farmers, as a large group of capital demanders, also undertake a part of the capital supply task.Different from previous literature researches, this paper will focus on farmers as the supply side of funds, and aims to study households’lending behavior and its influencing factors. Our first hand data collected in the questionnaire form, and the samples are chosen randomly. Then, we go on theoretical and empirical research about capital lending behavior. First, by the method of descriptive statistics analysis, present the overall situation of the samples, and summarize the characteristics of rural households’lending behavior. Second, build two-stage Heckman selection model to analyze the factors of lending behavior.This paper draws the following conclusions. First, characters of rural households’ lending behavior include small scale, informal procedures, flexible repayment deadline and short time-lag; free lending is the main form of rural households’lending; and the capital tends to be used in non-productive way. Second, information asymmetry is the core advantage of rural households’lending; both lenders and borrowers can swap roles and help each to cope with risks, so, the lending behavior even becomes a means to avoid risks. Informal lending procedures also will have a negative effect on the stability of rural households’lending; rural households’lending also greatly constrained by economic status themselves and social relationship. Third, the improvement of family economic status and the expansion of social network will increase the opportunity of rural households’lending behavior. Households’economic status also has a positive impact on the lending decision. The difference is that, lending behavior with interest mainly considers security and profitability; and social network and the use of capital are main considerations when making free lending decisions.Finally, according to the study results, this paper presents policy suggestions from formal financial institutions view and relevant departments of the government view:rural formal financial institutions should make full use of the information transmission function from social network, and build a stable and efficient information communication channels, then gradually relax the restrictions on rural households’lending; the relevant departments of government should integrate the rural informal credit market reasonably, provide relatively supporting policies for the rural financial institutions, and strengthen the investment to human capital.