Improving Climate Resilience in Rural Credit: A Randomized Evaluation in China

Climate change is increasingly destabilizing rural credit markets by raising default risks for agricultural loans. Extreme weather events – such as heatwaves and heavy rainfall – can significantly reduce farm yields, jeopardizing loan repayment. However, rural banks often overlook climate risks or lack structured approaches to integrate these risks into loan management. This project evaluates information-based interventions to improve risk management by enhancing climate resilience in both agricultural production and rural credit. The researchers are piloting a randomized evaluation with farmers and loan officers in China, testing interventions that address two key challenges: (i) climate risk awareness, providing loan officers and farmers with targeted information on climate risks, forecasts of extreme weather events, resilient farming practices, and agricultural insurance options; and (ii) loan officer accountability, encouraging more systematic follow-ups with farmers post-loan issuance to ensure risk mitigation strategies are implemented. These interventions are delivered through training sessions, digital tools, and structured reporting mechanisms to improve decision-making and risk management. This study will provide practical insights for policymakers and financial institutions on integrating climate risk considerations into rural lending practices. The findings will enhance understanding of how information asymmetries, risk perception, and institutional accountability influence credit market resilience under climate change. Additionally, this study will inform scalable policy solutions that can be adapted to other developing economies with climate-exposed agricultural sectors.