Social Capital in Cooperative Memberships and Farmers’ Access to Bank Credit–Evidence from Fujian, China

Abstract

For rural communities in poor countries to develop, farmers need money to invest in their farms. However, with limited assets of their own and poor conditions for obtaining loans, the farmers’ operations suffer. This study explores how farmers’ chances of obtaining a bank loan are related to the social capital that they receive from their cooperative membership. The data originated from 743 farmers in Fujian province, China, and was analyzed with the help of the instrumental variable probit (IV-probit) regression model. The results show that (a) cooperative members have a higher chance of obtaining a bank loan compared to non-members; (b) cooperative membership positively influences the chances of obtaining a bank loan for farmers with no acquaintances in banks and government or off-farm work; and (c) among farmers with higher financial knowledge, cooperative members are more likely to receive a bank loan than non-members are. Therefore, the conclusion provides empirical evidence for the financial function of cooperatives to farmers. The findings are especially relevant for cooperatives in developing countries, and they call for farmers and cooperatives to establish cooperative financial institutions. Moreover, the research conclusions point out the direction for further improving the financial effect of cooperatives.

Keywords

• farmer cooperative
• agricultural credit
• peasant household
• bank loan
• information asymmetry
• social capital