Social Networks and Informal Financial Inclusion in the People's Republic of China

36 Pages Posted: 19 Mar 2018

See all articles by Shijun Chai

Shijun Chai

Xinyang Normal University

Yang Chen

Xi'an Jiaotong University (XJTU) - International Business School Suzhou

Bihong Huang

Asian Development Bank Institute

Dezhu Ye

Jinan University

Date Written: January 29, 2018

Abstract

Using the 2011 China Household Finance Survey (CHFS) database, we explore the heterogeneous impacts of social networks on informal financial inclusion for urban and rural households in the People’s Republic of China. We find that social networks significantly increase the probability of households’ participation in the informal financial market, augment the size of informal financial transactions, and raise the ratio of informal lending to total household assets. We also identify the mechanisms through which social networks affect households’ participation in the informal financial market. By reducing the information cost, perceived risk, and precautionary saving, social networks play a larger role for urban households than for rural households. Notably, the effects of social networks on informal finance are strengthened by the development of the formal financial market.

Keywords: social networks, informal financial inclusion, perceived risk, precautionary saving, formal financial market

JEL Classification: D1, G2

Suggested Citation

Chai, Shijun and Chen, Yang and Huang, Bihong and Ye, Dezhu, Social Networks and Informal Financial Inclusion in the People's Republic of China (January 29, 2018). ADBI Working Paper 802, Available at SSRN: https://ssrn.com/abstract=3140099 or http://dx.doi.org/10.2139/ssrn.3140099

Shijun Chai

Xinyang Normal University

Henan Sheng, Shihe Qu
Xinyang Shi
China

Yang Chen (Contact Author)

Xi'an Jiaotong University (XJTU) - International Business School Suzhou ( email )

111 Ren’ai Road,
Suzhou Lake Higher Education Town,
Suzhou, Jiangsu 215123
China

Bihong Huang

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Dezhu Ye

Jinan University ( email )

Huang Pu Da Dao Xi 601, Tian He District
Guangzhou, Guangdong 510632
China

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