The Determinants of Formal and Informal Household Loan Selection: Evidence from China

• Published in: Business Challenges in the Changing Economic Landscape - Vol. 1 Vol. 2/1; pp. 191 - 200
• Main Author: Xue, Chen
• Format: Book Chapter
• Language: English
• Published: Switzerland Springer International Publishing AG 2015; Springer International Publishing
• Series: Eurasian Studies in Business and Economics
• Subjects: Business strategy; Finance; House-ownership; Household finance; Informal loan; Political economy; Private lending; Social circles
• ISBN: 9783319225951; 3319225952
• ISSN: 2364-5067; 2364-5075
• DOI: 10.1007/978-3-319-22596-8_13

The study investigates the relationship between household factors and the choice of Loan channels in the household borrowing decision. Using the survey data from the 2010 China Family Panel Studies (CFPS 2010), this paper finds that the households with better education and higher income are likely to get loans from formal financial institutions such as commercial banks, while middle-aged households show more probability to get loans from banks and private money lenders. But the household with less income and poor education background are more reliable to be financed by their social relationships such as friends and relatives. The house-ownerships play different roles in such selection. The household investors are less likely to turn to their social relationships. Comparatively, the house renters are harder to get money from banks as lack of collateral. Moreover, the household with the ownership of house for investment, would increase their risk preferences to increase amount of money financed by such channel and even afford a higher interests.