| By: |
Nan Zhou (College of Finance, Nanjing Agricultural University);
Wenli Cheng (Department of Economics, Monash University);
Longyao Zhang (College of Finance, Nanjing Agricultural University) |
| Abstract: |
This paper studies the effect of microcredit on a rural household’s subsequent
access to bank loans. Based on a 2018 survey of rural households in 6 Chinese
provinces, we find that microcredit served as a stepping stone to bank credit:
participation in microcredit improved a household’ probability of obtaining
bank loans in the following year by 4.9 percentage points. Notably, the
stepping effect was present for both the relatively wealthy households and
poor households, if we measure wealth by households’ social capital and
assets. We identify two mechanisms behind the stepping stone effect. First,
the experience of microcredit instilled confidence in households, which helped
to turn their hidden demand for bank credit into effective demand. Second,
since microcredit records were included in the National Credit Information
System, participation in microcredit in effect enabled households to provide
banks with creditable and easily discoverable information about their
creditworthiness, which greatly improved their chances of obtaining bank loans. |
| Keywords: |
Microcredit, stepping stone effect, credit graduation, financial inclusion |
| JEL: |
G21 O16 |
| Date: |
2022–07 |
| URL: |
http://d.repec.org/n?u=RePEc:mos:moswps:2022-15&r= |