A ticket to formal finance: credit rating and farmers’ financing choices

Abstract

This paper examines how credit rating affects farmers’ financing choices within China’s dual rural financial structure. Using four waves of household survey data and a difference-in-differences model, we show that credit rating increases formal borrowing while reducing both interest-bearing and interest-free informal borrowing. The shift operates through lower self-rationing and bank credit rationing. The effects are stronger among low-income farmers and in villages where members of the village ‘two committees’ serve on the rating team. These findings show that locally implemented credit information systems can improve formal credit access and reshape the allocation of rural borrowing.