Microcredit and Informal Risk Sharing: Experimental Evidence from the Village Banking Program in China

Topic： Microcredit and Informal Risk Sharing: Experimental Evidence from the Village Banking Program in China

Speaker： Cai Shu（Associate Professor, Economic and Social Studies, Jinan University）

Host：Sha Wenbiao, Assistant Professor, Lingnan College

Time and Date：14:30-17:30, Oct 21, 2022

Venue: Wang Daohan Conference Room，Lingnan Hall

Language: English +Chinese

Abstract:

T This study examines the impacts of a large-scale government-led microcredit program on informal risk sharing among poor households in rural China using a randomized controlled trial. The results show that access to microcredit reduced informal borrowing for an average household in treatment villages. In particular, informal borrowing decreased substantially for program members, regardless of whether or not they had borrowed from the program. Further analyses suggest that the program alleviated households’ dependence on informal borrowing to deal with consumption shocks for program members who did not borrow from the program. Meanwhile, for such households, the crowding-out effect on informal borrowing existed even during the program’s announcement period. These results are consistent with the theoretical prediction that access to microcredit raises the expected utility of autarky relative to that derived from risk-pooling arrangements, and thus reduces implementable risk-sharing contracts.

Profile of the speaker

Cai Shu is an associate professor, Economic and Social Studies at Jinan University. His research areas include development economics, labor economics, and applied microeconomics, including poverty issues, rural finance, population mobility, and subjective well-being. Related studies were published in internationally renowned journals including Journal of Development Economics, Journal of Economic Behavior and Organization, Journal of Population Economics, Oxford Economic Papers, China Economic Review, etc. Presided over the national Natural Science Foundation of China general project, youth Fund project, Guangdong Provincial Department of Education general university innovation Fund and other projects. He won the Outstanding Doctoral Thesis Award in China Economics and the Best Paper Award of China American Economics Association.