Central Bank's Zhang Jin: Opening Up the "Last Mile" of Rural Finance
Economic Observer reporter Wu Qiaofa The “last mile” of rural financial services remains to be opened up. Given the production characteristics of rural areas, the funds farmers need often involve problems such as small amounts, high costs, and the lack of effective collateral, which to a certain extent restricts traditional financial institutions from issuing agricultural loans, and the problem of farmers' difficulty in obtaining financing remains prominent.
“The birth of internet finance has provided new horizons and paths for solving the issues of agriculture, rural areas, and farmers.” Zhang Jin, director of the Financial Consumer Rights Protection Division of the People's Bank of China Guangzhou Branch, revealed that since August this year, under the planning and promotion of the People's Bank of China Guangzhou Branch, four internet finance enterprises - PPmoney, Guangzhou e-Dai, Dianchou Finance, and Zhengqin Finance - have carried out pilot projects using crowdfunding to solve the difficulty rural farmers face in obtaining loans and to open up the “last mile” of agricultural support funds.
So-called crowdfunding means that projects and investors connect directly through the internet. Anyone can send their entrepreneurial idea or related project to a crowdfunding platform, and after review by the crowdfunding platform it is published, netizens voluntarily provide financial support, and the return is the corresponding product or service.
In order to further improve the feasibility and scalability of the “Internet + Credit for Agriculture, Rural Areas, and Farmers” crowdfunding project, Qiu Bin, deputy governor of the People's Bank of China Guangzhou Branch, led an inspection team to Meizhou, Yunfu, Zhaoqing, Qingyuan, and 4 prefecture-level cities for on-site inspections, learning about the local agricultural construction and development situation as well as the industrial projects of key leading agricultural enterprises.
After preliminary research and after understanding the plight of farmers' difficulty in obtaining financing, the above four internet finance platforms used local products with geographical indications as the underlying assets and published distinctive agricultural crowdfunding projects on their online platforms. The funds raised through the platforms will be provided to farmers for purchasing seeds and fertilizer. Theagricultural products produced by the farmers will be sold to the relevant core leading agricultural enterprises, and at the same time the sales income obtained by the farmers will be used to repay the principal of the investors' loans, while the interest obtained by investors will be the high-quality agricultural products produced by the farmers.
“This financing method, while bringing high-quality agricultural products to investors, can also guide social funds to support the development of agriculture, rural areas, and farmers, realize the optimized allocation of funds and agricultural production factors, promote the integration of internet finance with the real economy, and achieve zero-distance financial services for agricultural development.” Zhang Jin said.
He believes that the Internet finance + action has opened a new door for rural residents and small and micro enterprises in investment and financing, bringing new changes to financial services for the development of agriculture, rural areas, and farmers.
The first change: from traditional finance in which one financial institution faces thousands of farmers to numerous investors directly facing one farmer or farming household, with high efficiency and low cost. The traditional financial model is one financial institution facing thousands of hundreds of farmers, and the procedures for doing a credit investigation for each farmer are the same, so its cost is very high. Some people say that doing an investigation of one farming household is the same as doing a credit investigation and credit reporting investigation of Gree, both in procedures and cost. There is a practical problem here: with so many farmers, the cost is very high and the efficiency is very low.
Now, with the crowdfunding method, this can be changed. “After our platform conducts an investigation of one farmer, it sends it online, and thousands of hundreds of investors can use this investigation material and then make their own investment choices, thereby improving efficiency, and the cost is also very low.” Zhang Jin said.
The second change: from one financial institution bearing all the loan risk to numerous investors sharing the risk, with small investment and low risk. At present, in the traditional way, one financial institution has to face thousands of hundreds of farming households, and the risk of thousands of hundreds of farming households is therefore borne by one financial institution, so the risk is very high. In other words, if we turn it around and use the crowdfunding method, then thousands of hundreds of investors face one farmer, and the risk of one farmer is shared by these thousands of hundreds of investors, and this kind of risk is controllable and bearable.
The third change: from the traditional method requiring collateral or guarantees to farmers only needing to provide social information, production credit information, and credit reporting information. When traditional financial institutions make loans, they need collateral, and farmers and farming households have no collateral; farmland cannot be mortgaged, and housing cannot be mortgaged. Now we are carrying out this reform and this experiment, but with the crowdfunding method, collateral is not needed. What is needed? Credit support is needed. As long as you provide credit, when a farming household needs funds on a crowdfunding platform, what it provides is the farmer's own social information, such as whether he gambles in the village, and so on, as well as safe production, because what our investors need is a kind of green and ecological agricultural product, and information such as that in the production process it is green and safe is enough.
The fourth change: from farmers paying principal and interest in cash at maturity to repaying principal and interest with agricultural products, with few intermediate links and diversified returns. In the past, the return of traditional finance could only be currency; it was impossible for it to take your agricultural products. But the returns that investors in the crowdfunding method want to obtain, apart from currency and apart from recovering the principal, can have many choices: they can want currency, or they can want agricultural products, and they may not even want the principal at all and may want all of it in agricultural products, such as high-quality rice and so on.
The fifth: from rural funds being drawn away to urban construction to attracting urban funds to back-feed and support agricultural development, with a new method and quick results. Traditional financial institutions located in rural areas often deposit their deposits upward and transfer them up to the cities, but the internet crowdfunding method attracts urban funds to back-feed into rural areas and back-feed agriculture.
These changes are precisely the changes that internet finance has brought to traditional rural finance, and they are also effective methods and new paths for solving farmers' difficulty in obtaining financing and opening up the “last mile” of financial services. On November 12, witnessed by Fan Yifei, deputy governor of the central bank, the “Internet + Credit for Agriculture, Rural Areas, and Farmers” crowdfunding project was launched.