Internal Migration and Personal Loan Default in China

This study examines the effect of Chinese internal migration upon credit risk. Specifically, we track the likelihood of default on a large panel of individual personal loans provided by a prominent Chinese commercial bank. We find that internal immigrants (i.e. those that migrate from one area of China to another) are more likely to default than local borrowers at low-income levels. This relationship reverses as income rises. We document that immigrants are, on average, charged higher interest rates for loans of the same type, same amounts, and same maturities, than their local borrower peers (termed immigrant premium) and this higher cost of capital positively impacts relative default rates