Segmented markets: Grassroots finance in rural China and India

The first section reviews the key expressions of formal and semi-formal finance in China and India, and shows how the countries' strategies in rural financial intermediation compare with one another. Both have relied on directed credit and encouraged the growth of microfinance programmes, albeit to differing degrees. The second section outlines the main expressions of informal finance in China and India and discusses the extent to which they have been subject to state regulation. The third section delineates three competing explanations for why state efforts to substitute informal finance with microfinance have not been successful, and argues that local political and social conditions fundamentally mediate state efforts at policy implementation. It also presents two local case studies from India and China, respectively, to illustrate the causal power of local political economic dynamics in financing rural development.