Abstract
This chapter applies the Helmke–Levitsky typology of informal institutions to discuss how the interaction between the formal and informal institutional environment has shaped the development of China’s microfinance industry. The chapter shows that formal regulatory framework influenced commercial ‘for-profit’ microfinance providers (village and township banks or ‘VTBs’) and public interest microfinance providers (microcredit companies or ‘MCCs’) in different ways. While MCCs suffer deficiencies of not being able to accept savings deposits, VTBs are restricted by the inability to charge higher risk-adjusted interest rates. Geographical separation and low levels of out-group trust constrain the development of microfinance organisations, especially when the organisations do not have strong ties to local communities This study was approved by the appropriate university ethics committee and subsequently performed in accordance with the ethical standards in the 1964 Declaration of Helsinki. All persons gave their informed consent prior to inclusion in the study. Details disclosing the identity of the subjects under study have been omitted. The authors have full control of the primary data and have no financial relationship or conflict of interest with the organisations involved in the research.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Abbreviations
- CBRC:
-
China Banking Regulatory Commission
- MCC:
-
Microcredit Company
- NGO:
-
Non-governmental Organisation
- PBOC:
-
People’s Bank of China
- RMB:
-
Renminbi
- VTB:
-
Village and Township Bank
References
Ahlstrom, D., Bruton, G. D., & Yeh, K. S. (2008). Private firms in China: Building legitimacy in an emerging economy. Journal of World Business, 43(4), 385–399.
Argandoña, A. (2010). Microfinance. In J. R. Boatright (Ed.), Finance ethics: Critical issues in theory and practice (pp. 419–434). Hoboken: Wiley.
Barboza, G., & Trejos, S. (2009). Micro credit in chiapas, Mexico: Poverty reduction through group lending. Journal of Business Ethics, 88(2), 283–289.
Battilana, J., & Dorado, S. (2010). Building sustainable hybrids: The case of commercial microfinance organizations. Academy of Management Journal, 56(6), 1419–1440.
Beck, T., Demirguc-Kunt, A., & Honohan, P. (2009). Access to financial services: Measurement, impact, and policies. The World Bank Research Observer, 24(1), 119–143.
Boatright, J. R. (2010). Ethics in Finance. In J. R. Boatright (Ed.), Finance ethics: Critical issues in theory and practice (pp. 1–19). Hoboken: Wiley.
Boisot, M. H., & Child, J. (1988). The iron law of fiefs: Bureaucratic failure and the problem of governance in the Chinese economic reforms. Administrative Science Quarterly, 33, 507–527.
Boisot, M. H., & Child, J. (1996). From fiefs to clans and network capitalism: Explaining China’s emerging economic order. Administrative Science Quarterly, 41(4), 600–628.
Brislin, R. (1993). Understanding culture’s influence on behavior. Fort Worth: Harcourt Brace College Publishers.
Britta, A., & Fouillet, C. (2010). Profit empowerment: The microfinance institution’s mission drift. Perspectives on Global Development and Technology, 9(3–4), 327–355.
Bruton, G. D., & Ahlstrom, D. (2003). An institutional view of China’s venture capital industry explaining the differences between China and the West. Journal of Business Venturing, 18(2), 233–259.
Bruton, G. D., Ahlstrom, D., & Li, H. (2010). Institutional theory and entrepreneurship: Where are we now and where do we need to move in the future? Entrepreneurship, Theory and Practice, 34(3), 421–440.
Bruton, G. D., Khavul, S., & Chavez, H. (2011). Microlending in emerging economies: Building a new line of inquiry from the ground up. Journal of International Business Studies, 42(5), 718–739.
Bryman, A. (2008). Social research methods. Oxford: Oxford University Press.
Cerny, S., & Tou, J. (2010). Microfinance: The untapped Chinese market. China Briefing: Magazine and Daily News Service. Retrieved from http://www.china-briefing.com/news/2010/05/13/the-untapped-chinese-market.html.
Chakrabarty, S., & Bass, A. E. (2014). Institutionalizing ethics in institutional voids: Building positive ethical strength to serve women microfinance borrowers in negative contexts. Journal of Business Ethics, 119(4), 529–542.
Child, J. (1994). Management in China during the age of reform. Cambridge: Cambridge University Press.
Chiu, T. (2014). Putting responsible finance to work for Citi microfinance. Journal of Business Ethics, 119(2), 219–234.
Cowton, C. (2010). Banking. In J. R. Boatright (Ed.), Finance ethics: Critical issues in theory and practice (pp. 325–337). Hoboken: Wiley.
Cull, R., Demirguc-Kunt, A., & Morduch, J. (2009). Microfinance meets the market. Journal of Economic Perspectives, 23(1), 167–192.
DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147–160.
DiMaggio, P. J., & Powell, W. W. (1991). Introduction. In W. W. Powell & P. J. DiMaggio (Eds.), The new institutionalism in organizational analysis (pp. 1–38). Chicago: University of Chicago Press.
Eisenhardt, K. M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532–550.
Eisenhardt, K. M., & Graebner, M. E. (2007). Theory building from cases: Opportunities and challenges. Academy of Management Journal, 50(1), 25–32.
Estrin, S., & Prevezer, M. (2011). The role of informal institutions in corporate governance: Brazil, Russia, India, and China compared. Asia-Pacific Journal of Management, 28(1), 41–67.
Glaser, B. G., & Strauss, A. L. (1967). The discovery of grounded theory: Strategies for qualitative research. New York: Aldine de Gruyter.
He, G., Du, X., Bai, C., & Li, Z. (2009). China microfinance industry assessment report. China Association of Microfinance. Retrieved from http://en.chinamfi.net/portal/PortalHome.asp.
Helmke, G., & Levitsky, S. (2004). Informal institutions and comparative politics: A research agenda. Perspectives on Politics, 2(4), 725–740.
Hermes, N., & Lensink, R. (2007). The empirics of microfinance. What do we know? The Economic Journal, 117(517), F1–F10.
Hermes, N., Lensink, R., & Mehrteab, H. T. (2005). Peer monitoring, social ties and moral hazard in group lending programmes: Evidence from Eritrea. World Development, 33(1), 149–169.
Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. (2000). Strategy in emerging economies. Academy of Management Journal, 43(3), 249–267.
Hudon, M. (2008). Norms and values of the various MFIs. International Journal of Social Economics, 35(1–2), 35–48.
Hudon, M. (2009). Should access to credit be a right? Journal of Business Ethics, 84, 17–28.
Hulme, D., & Mosley, P. (1996). Finance against poverty. London: Routledge.
Ito, S. (2003). Microfinance and social capital: Does social capital help create good practice? Development in Practice, 13(4), 322–332.
Khavul, S. (2010). Microfinancing: Creating opportunities for the poor? Academy of Management Perspectives, 24(3), 58–72.
Khavul, S., Chavez, H., & Bruton, G. D. (2013). When institutional change outruns the change agent: The contested terrain of entrepreneurial microfinance for those in poverty. Journal of Business Venturing, 28, 30–50.
Kvale, S. (2007). Doing interviews. London: Sage.
Lee, T. W. (1999). Using qualitative methods in organizational research. Thousand Oaks: Sage.
Mair, J., & Marti, I. (2009). Entrepreneurship in and around institutional voids: A case study from Bangladesh. Journal of Business Venturing, 24(5), 419–435.
Mendoza, R., & Thelen, N. (2008). Innovations to make markets more inclusive for the poor. Development Policy Review, 26(4), 427–458.
Meyer, K. E. (2001). Institutions, transaction costs, and entry mode choice in Eastern Europe. Journal of International Business Studies, 31(2), 357–367.
Miles, M., & Huberman, A. (1994). Qualitative data analysis: An expanded sourcebook. London: Sage.
North, D. (1990). Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.
Park, A., & Ren, C. (2001). Microfinance with Chinese characteristics. World Development, 29(1), 39–62.
Peng, M. W. (2000). Business strategies in transition economies. Thousand Oaks: Sage Publications.
Peng, M. W. (2003). Institutional transitions and strategic choices. Academy of Management Review, 28(2), 275–296.
Peng, M. W., & Heath, P. (1996). The growth of the firm in planned economies in transition: Institutions, organizations, and strategic choice. Academy of Management Review, 21(2), 492–528.
Peng, M. W., Wang, D. Y. L., & Jiang, Y. (2008). An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39(5), 920–936.
Roodman, D. (2012). Due diligence: An impertinent inquiry into microfinance. Washington, DC: Center for Global Development.
Ryan, G. W., & Bernard, H. R. (2003). Techniques to identify themes. Field Methods, 15(1), 85–109.
Schmidt, R. H. (2010). Microfinance, commercialization and ethics. Poverty & Public Policy, 2(1), 99–137.
Scott, R. W. (1995). Institutions and organizations. Thousand Oaks: Sage.
See, G. (2009). Harmonious society and Chinese CSR: Is there really a link? Journal of Business Ethics, 89(1), 1–22.
Sparreboom, P., & Duflos, E. (2012). Financial inclusion in the People’s Republic of China: An analysis of existing research and public data. A Joint Publication of CGAP and the Working Group on Inclusive Finance in China: China Papers on Inclusiveness No. 7. Retrieved from http://www.microfinanceforum.org/wp-content/uploads/2012/09/WMFG-China-Overview_v7-electronic_hr.pdf.
Spencer, S., & Wood, A. (2005). Making the financial sector work for the poor. Journal of Development Studies, 41(4), 657–675.
Tan, J. (2009). Institutional structure and firm social performance in transitional economies: Evidence of multinational corporations in China. Journal of Business Ethics, 86, 171–189.
Tavanti, M. (2013). Before microfinance: The social value of microsavings in Vincentian poverty reduction. Journal of Business Ethics, 112(4), 697–706.
Tracey, P., & Phillips, N. (2011). Entrepreneurship in emerging markets: Strategies for new venture creation in uncertain institutional contexts. Management International Review, 51(1), 23–39.
Tsai, K. S. (2002). Back-alley banking: Private entrepreneurs in China. New York: Cornell University Press.
Tsai, K. S. (2004). Imperfect substitutes: The local political economy of informal finance and microfinance in rural China and India. World Development, 32(9), 1487–1507.
Turvey, C. G., & Kong, R. (2010). Informal lending amongst friends and relatives: Can microcredit compete in rural China? China Economic Review, 21(4), 544–556.
Woller, G., Dunford, C., & Woodworth, W. (1999). Where to microfinance? International Journal of Economic Development, 1(1), 29–64.
Wright, M., Filatotchev, I., Hoskisson, R., & Peng, M. W. (2005). Strategy research in emerging economies: Challenging the conventional wisdom. Journal of Management Studies, 42(1), 1–33.
Wu, E., & Yuan, X. (2013). Emerging risks on China’s path towards financial inclusion—A joint publication of PlaNet Finance and CreditSuisse. Retrieved from http://www.microfinancegateway.org/p/site/m/template.rc/1.9.61842/.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2017 The Author(s)
About this chapter
Cite this chapter
Newman, A., Schwarz, S., Borgia, D.J., Wei, W. (2017). The Influence of Formal and Informal Institutions on Microcredit: Financial Inclusion for Micro-Entrepreneurs by Lender Type. In: Cumming, D., Dong, Y., Hou, W., Sen, B. (eds) Microfinance for Entrepreneurial Development. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-62111-1_2
Download citation
DOI: https://doi.org/10.1007/978-3-319-62111-1_2
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-62110-4
Online ISBN: 978-3-319-62111-1
eBook Packages: Economics and FinanceEconomics and Finance (R0)