Formal Credit Constraint and Prevalence of Reciprocal Loans in Rural China

Abstract The unique feature of the rural credit market in China is dominance zero collateral and zero-interest reciprocal lending its long-term coexistence with formal loan. This paper investigates association between constraint prevalence loans China. Based on identification households’ status, we examine effects utilization informal loans. We find that significantly increases borrowers’ reliance loans, whereas “debt gratitude” imposes an uncertain obligation borrowers, discourages them from borrowing amongst relatives friends.