Rural Households’ Preferences for Microfinance and Its Impact of Participation on Households’ Welfare in China

This cumulative dissertation examines households’ preferences for microfinance and its impact on welfare in rural China. The empirical analyses used a dataset that includes a discrete choice experiment from a household survey in Sichuan Province. Specifically, the study first examines factors that influence farm operators’ decisions to participate in microfinance for farming and off-farming production activities, and the impact of participation on farm and off-farm income. Second, the determinants of participation in various microfinance programs and the differential impacts of microfinance on non-participants and three categories of participants in microfinance are analyzed. Third, this study examines the smallholder preferences and willingness-to-pay measures for microfinance based on a discrete choice experiment. Finally, this study applies the Bayesian updating method to account for the learning process involved in acquiring experience on microfinance. The empirical results show that family size, farmland size, dependency ratio and local casual wage rate mainly determine the participation in microfinance. The findings indicate that participation in microfinance tends to increase income and consumption, in which the loan from commercial banks would increase income to the largest extent. The results also reveal that rural households prefer longer credit period, smaller loan size, lower transaction costs and lower interest rate. The empirical findings show that experience with microfinance products or lending institutions help households in their selections of microfinance institutions. In particular, experience with financial institutions increase the scale parameter and help respondents to feel assured about their choices, while experience with individual lenders have no such effects.