Obstacles to Accessing Pro-Poor Microcredit Programs in China: Evidence from Penggan Village, Guizhou

Why do poor farmers not take up microcredit loans, even when the terms are designed to be pro-poor? Fieldwork in a village in China's Guizhou province revealed a puzzle: although the county government had designed a loan program that was intended to be unusually pro-poor, only three of the 349 eligible households had successfully applied. This article analyzes three potential hypotheses: farmer failure (risk aversion or financial illiteracy), market failure (lack of viable or stable market opportunities), and institutional failure (structural or institutional barriers precluding taking up loans). Based on evidence from intensive interviews, we reject the first hypothesis, and conclude that the persistence of structural and institutional barriers can preclude the poor from taking up loans. However, even if these barriers are overcome, we suggest that microcredit loans should be integrated into a larger development policy designed to stimulate the market and market opportunities in which the poor can participate.