The demand for microcredit as a determinant for microfinance outreach: evidence from China

Enjiang Cheng
Savings and Development Vol. 31(2007), No. 3, pp. 307-334

The studies on the outreach of microfinance programmes have so far focused on the supply side: the higher transactional costs incur when a microfinance institution (MFI) reaches out to the poor. Using a large household survey dataset from China, this study examines the low outreach achieved by three MFIs in China from a perspective of demand. The study found that the Grameen model microfinance programmes in China have failed to target the very poor automatically in the poor areas, as the demand for micro-loans is positively related to the household incomes, the opportunities for off-farm investment and the educational level of female borrowers. Many poor households rationed themselves out of the microcredit market. The study concludes that the current microfinance programmes in China even failed to target the very poor in the very poor areas of China, and have not contributed positively to poverty reduction. To improve the outreach of microfinance programmes to the poor, it is important to raise the demand for micro-loans from the poor by removing the other constraints and by tailoring the micro-loan products to the need of the poor. More importantly, direct fiscal support would be more important for the very poor in the poor areas.

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Issue: 2007 XXXI 3
Contributors: Cheng, Enjiang   
Keywords: , ,