Borrower attitudes, lender attitudes and agricultural lending in rural China

The purpose of this paper is to investigate the lender-borrower relationship as it relates to Sannong loans for agricultural and rural financial markets by Rural Credit Cooperatives (RCCs) and other rural lenders. This paper is motivated by recent reforms to the rural credit market designed to encourage increased lending, particularly to farmers. Little is understood about the lender-borrower relationship in rural China. This paper fills that gap.

The paper investigates relational attitudes between 120 loan officers at RCCs in China's costal Shandong province, paired with a field survey using matched questions to 394 farm households in the same region. Pairing lenders’ perception toward borrowers regarding RCC microcredit lending mechanism, against borrowers’ perception toward lenders and how themselves were perceived by lenders in the same regards, the paper investigates the degree of disconnect between lenders and with distinct cluster groupings based on their perceptions, the paper analyzes the influence of demographics on the borrower and lender cluster memberships.

The paper identifies four borrower clusters and two lender clusters. Borrower clusters are segmented on credit access and satisfaction with their rural lender. The paper also identifies two lender clusters, segmented principally on financial incentives and lending activities. While all lenders view farming with higher regard than farmers believe they do, one cluster is clearly pro-farmer while the second is somewhat indifferent. Indifference is more related to current portfolio activities. The paper draws conclusions that policy initiatives should be put in place at RCCs that close the gap between lender and borrower in their credit relationship. Rural lenders should concentrate on advocating RCCs’ care and trust toward agriculture and farm households. At the institutional level, effort should be extended to train a dedicated team of loan officers that specialize in servicing farm households with standardized lending practices. This research provides financial institutions with outreach mechanisms to borrowers, while also training lenders to borrowers’ sensitivities.

Management studies of RCCs are few. This is the first paper that the authors are aware of that studies farmer and lender attitudes on the same scale.