Title: Can Microcredit Program Crowd out Informal Financial Networks? Evidence from a Randomized Control Trial in China

Speaker: Shu Cai
Abstract: This study finds unintended crowding out effects of a microcredit program on informal financial networks of smoothing consumption among households in China based on a randomized control trial. The results show that the informal loans decrease substantially for both borrowers and nonborrowers of the program loans as a result of randomly assigned microcredit program to the village. Meanwhile, the paper finds the microfinance program reduces the effect of informal financial networks on consumption smoothing. Further analysis suggests the access to financial inclusion

weaken other forms of social interaction, like transfers, as well in the medium-long run. These results are consistent with a two-period model of households’ decisions under liquidity constraints. Expecting to take loans from the microcredit program in the second period, the households reduce savings for investment in the future. This enhances their capability to smooth consumption by selffinancing; thus, they rely less on informal financial networks. (JEL Codes: O16; G21).

About Shu Cai: Shu Cai is an assistant professor of the Institute for Economic and Social Research, Jinan University. His research interests include Development Economics, Labor Economics, Applied Microeconomics.

Date: September, 27th, 2017

Time: 12:10-13:20 PM

Location: Room 608, Academic Hall, CUFE