Self-Employed Versus Paid-Employed: What are the Different Preferences for Microfinance? Experimental Evidence From Rural China

Microfinance has gained significant importance in supporting the livelihoods of individuals in developing economies. This paper examines the influence of self-employment on preferences for microfinance, based on the hypothesis that self-employment choices and participation in microfinance share the same decision-making ability. The analysis utilizes data from a recent survey conducted in rural China, employing a generalized multinomial logit model (GMNL) to account for both preference heterogeneity and scale heterogeneity. This model allows us to investigate the choice probabilities and the impact of different types of self-employment on preferences for microfinance attributes. The empirical findings indicate that engaging in self-employment contributes to a sense of reassurance regarding preferences for microfinance among rural respondents. Specifically, non-agricultural self-employment has a positive effect on this preference, whereas agricultural self-employment has a negative effect. Plain Language Summary This article focuses on examining the impact of self-employment on preferences for microfinance, using data from a discrete choice experiment conducted in rural China. We present a conceptual framework that uses the generalized multinomial logit model, which effectively captures both preference heterogeneity and scale heterogeneity. This model allows us to analyze the choice probabilities and the impact of different types of self-employment on preferences for microfinance attributes. Our findings yield the following insights: self-employment and paid employment exhibit similar preferences for microfinance, but there are notable differences across various attributes. In particular, the preference for microfinance attributes is more pronounced among self-employed individuals compared to those in paid employment, and the preference for microfinance attributes is stronger among agricultural self-employed individuals compared to non-agricultural self-employed individuals.