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The Influence of Formal and Informal Institutions on Microcredit: Financial Inclusion for Micro-Entrepreneurs by Lender Type

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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.

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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

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Authors and Affiliations

  1. Department of Management, Deakin University, Melbourne, VIC, Australia

    Alexander Newman

  2. Economics, Finance and Entrepreneurship Group, Aston Business School, Birmingham, UK

    Susan Schwarz

  3. Richard J. Wehle School of Business, Canisius College, Buffalo, NY, USA

    Daniel J. Borgia

  4. University of Birmingham, Birmingham, UK

    Wu Wei

Authors
  1. Alexander Newman
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  2. Susan Schwarz
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  3. Daniel J. Borgia
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  4. Wu Wei
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Corresponding author

Correspondence to Alexander Newman .

Editor information

Editors and Affiliations

  1. Schulich School of Business, York University, Toronto, Ontario, Canada

    Douglas Cumming

  2. Aberystwyth University Business School, Aberystwyth, Surrey, United Kingdom

    Yizhe Dong

  3. University of Edinburgh Business School, Edinburgh, United Kingdom

    Wenxuan Hou

  4. Bangladesh Institute of Development Studies, Dhaka, Bangladesh

    Binayak Sen

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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

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  • DOI: https://doi.org/10.1007/978-3-319-62111-1_2

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  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-62110-4

  • Online ISBN: 978-3-319-62111-1

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