Heterogeneous Social network shape ability and willingness of rural residents to repay loans in China

This paper studies the impact and mechanism of heterogeneous social networks on credit repayment ability and willingness among Chinese rural residents. Based on the biprobit model with partial observability, we find a complementary relationship between repayment willingness and ability, and the heterogeneous social network effect differs with its nature. For repayment ability, bridging and bridged-linking social networks have positive effects whereas bonding and bond-linking social networks have insignificant effects. For repayment willingness, bonding and bond-linking social networks have positive effects whereas bridging and bridged-linking social networks have insignificant effect. Exploring mechanisms suggest that heterogeneous social networks affect repayment ability by alleviating income uncertainty, enhancing resident assets, and sharing risks; they shape repayment willingness through supervision, reputation, and punishment. Finally, the promoting effect of bonding and bond-linking networks on repayment willingness is enhanced by the construction of formal credit systems and the improvement of the informal credit climate.