ABSTRACT
ABSTRACT: Farmers turn to private credit markets instead of formal ones because they cannot get loans from the latter. This paper establishes a simultaneous discrete choice model including farmers’ credit demand to formal credit markets and credit supply of private credit markets. It estimates the alternative extent of private credit markets to formal ones by bivariate Probit model and analyzes credit risk factors in rural areas and assesses the significance of such factors. The main conclusions are: the land area (Land), housing values (House), the original value of fixed productive materials (Proca) are not significant in supply equation of private credit markets, but significant in formal credit markets. Farmers’ credit risk comes from information asymmetry, while the private credit markets can reduce such risk effectively. It is necessary to take advantage of the private credit markets and increase credit support to farmers in perspective of policy.
