Borrowing Amongst Friends: The Economics of Informal Credit in Rural China
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This paper investigates the economic significance of informal borrowing between friends and relatives in rural China. Guided by an economic model of household-production interactions, we provide results from a survey of over 1,500 households including GLM and Logistic regression results. We find evidence of a ‘small
farm bias’ in the use of informal credit, but we cannot generalize this to credit rationing as a matter of course. In part we believe that a preference for informal borrowing is related to some forms of credit rationing, spillover effects and collateral as some literature suggests, but our results suggest that by no means are these mutually exclusive or exhaustive.