An empirical analysis of microcredit on China rural household

Abstract

Since its introduction in Bangladesh in the seventies, microcredit has been well documented to have social implications such as reducing poverty and empowering the poor by offering them opportunities to access economic resources. Microcredit was introduced into China in the mid-1990s, aiming to facilitate credit access by farmers and mitigate rural poverty in China. However, the impacts of microcredit on China rural households’ livelihoods are not well documented. In addition, despite the efforts made by the Chinese government to support and popularise the implementation of microcredit, the access to institutional credits including microcredit by the rural population remains insufficient. This research assesses the impacts of microcredit on household welfare (measured by income and consumption) and women empowerment in rural China. In addition, it examines the key factors that influence the accessibility of microcredit by rural households in China. The impact of microcredit on household welfare is estimated using the difference-in-difference approach and logistic regression is employed to analyse the accessibility to microcredit by Chinese rural households and the women’s empowerment impact of microcredit respectively. Both primary and secondary data are used in the empirical analyses: primary data are collected through a household survey using a structured questionnaire; secondary data are obtained from the Rural Credit Cooperative, the largest microcredit provider in China. The results support the wide belief in the literature that microcredit can significantly improve the households’ welfare such as income and consumption. The results also reveal that microcredit has a significant impact on five different dimensions of women empowerment ranging from economic security (i.e., control of financial resources) to awareness of social/legal issues (e.g., rights to protest against domestic abuse, minimum legal marriage age, etc). Furthermore, a total of twelve household-related factors (e.g., household income, family size) are identified as key factors influencing households’ accessibility to microcredit. Despite the optimistic findings on how microcredit has changed the rural households’ lives, the results show that the vast majority of the programme participants are non-poor, which casts some doubts on the social potential (such as poverty reduction) of China’s microcredit programmes.