Formal and Informal Credit Markets and Rural Credit Demand in China

Credit markets play essential roles in financial institutions. In developing countries, especially in emerging market countries which are in the process of restructuring of industry, it is important to identify the reasons of credit constrains by an efficient way to facilitate economic transaction. On common phenomena in China rural credit markets is the informal credit market develop rapidly, it is very common for rural households to both through their networks. However it is inadequate in addressing rural credit needs. This research has 3 specific objectives: (1) Explore the relative importance of formal vs. informal rural credit markets in China (2) Identify factors determining households' choice of credit sector and the size of loan rural households borrowed from formal or informal credit markets. (3) Explore the degree to which households are constrained in credit access and identify the underlying factors. This paper also has some policy implications based on the empirical studies. The government can release the households constrain by making the formal credit more flexible and increasing the informal credit such as the microfinance for women.