ABSTRACT

This chapter explains the major institutional characteristics of the loan market in prewar China insofar as it affected the peasants, and the interrelationship between this and other factor markets. It also explains the determination of interest rates and their relationship to risk default. The general forms of loan transaction, arranged in probable order of importance, included cash and grain loans, mortgaging, pawning and credit society loans. Cash and grain loans could also be subdivided according to whether the guarantee of repayment was merely word-of-mouth, involved a third-party guarantor or the title to property as security. Interest rates were normally simple, not compounded, and were paid either in cash or commodities, depending on the terms of the loan. In contrast to the ordinary loan procedure, where the connection between the land market and the money market was only through the use of land as a guarantee of repayment, the mortgage procedure constituted a direct link between the two markets.