Microfinance, self-employment, and entrepreneurs in less developed areas of rural China

•Examine the impact of credit access on farmers' employment decision-making in China.•Panel data concerning 1992 rural households from 2006-2009.•The demand for credit is immense in rural China.•Microfinance affected farmers' self-employment, and has potentials to promote entrepreneurship.•The intellectual bias and regulations against NGO microfinance should be re-visited in China.

China is experiencing a transformation, as vast numbers of rural laborers move toward off-farm employment. In such a transformation, the role of credit is unclear. The overall goal of this study is to examine the impact of access to credit by rural households on employment decision-making by rural laborers in China. Based on longitudinal data concerning 1992 rural households in China, this study finds that the use of credit is immense in rural China. Among different types of credit, access to microfinance significantly increased farmers' time working on self-employment activities, especially for the poor households. Credit from formal financial institutions and informal networks had no such effect.