Determinants of Loan Funding Success and Default for a Chinese Microfinance Portfolio

There is extant research on microfinance lending in the Chinese informal financial market focused on data obtained from online lending platforms and microfinance loans within the rural community. However, there is less research output regarding Chinese offline informal lending featuring unbanked and underbanked borrowers from a wealthier community. Using a unique dataset obtained from a microfinance lending institution in China, we explore the characteristics of loan applicants and investigate the determinants of loan funding success and default in this market. Based on univariate and multivariate analysis, our findings provide evidence of the existence of demographic discrimination in terms of gender and marital status in the Chinese offline informal lending market. A comparison of business and non-business loan applicants reveals that business loan applicants tend to be older and significantly wealthier. They also have a higher funding success rate. Furthermore, we find that lenders consider some variables to have different effects for business loan and non-business loan, but we find no evidence of association between being a business owner and the likelihood of default, as suggested by the insignificant association of the interaction variable business owner and interaction terms, controlling for other variables.