How Can Farmers Apply for Loans Without Collateral
On August 24, the State Council issued the "Guiding Opinions on Carrying Out Pilot Programs for Mortgage Loans on Rural Contracted Land Management Rights and Farmers' Housing Property Rights" (hereinafter referred to as the "Opinions"), pointing out the need to prudently and steadily advance pilot programs for the mortgage, guarantee, and transfer of farmers' housing property rights, and to do a good job in pilot work on mortgage loans for rural contracted land (referring to arable land) management rights and farmers' housing property rights.
As is well known, one important reason why it is difficult for farmers to get loans is the lack of loan collateral. This is mainly because China's "Property Law" clearly stipulates that the land use rights of collectively owned arable land, homestead land, private plots, and private hills shall not be mortgaged. For farmers' most important assets——houses and arable land, arable land is explicitly not allowed to be mortgaged, and since houses cannot be mortgaged because homestead land is prohibited from being mortgaged, a house without homestead land is meaningless, and therefore also useless. But! Setting aside the pilot programs in the "Opinions," can one really not get a loan without collateral? No, even without collateral there are still many ways to get a loan. Let us now review them together:
1. Order Agriculture Loans
Order agriculture, also called contract or contractual agriculture, refers to an agricultural production and marketing model in which farmers sign orders with buyers of agricultural products (leading agricultural enterprises, etc.) and then organize and arrange agricultural production. Order agriculture loans are special loans issued to farmers who have signed agricultural orders, used to cover expenditures arising from the planting of grain crops, vegetables, and fruits organized to meet order requirements, the breeding of livestock and aquatic products, and the processing and logistics of local specialty agricultural products.
The operating methods of order agriculture vary from place to place, but their basic idea is the same: with the guarantee of an order, farmers' credit is somewhat improved. So as long as an agricultural product purchasing enterprise or the government provides a guarantee, and farmers sign a contract ensuring the loan is used for special agricultural production, financial institutions are willing to provide loans. Why not do it!
2. Credit Loans
The construction of the rural credit system is one of the means by which the state supports financing for family farms, farmers, small and micro enterprises, and other small and micro entities in rural areas, and develops inclusive finance. Credit loans discover and enhance the credit value of farmers, family farms, and other economic entities by establishing credit files and carrying out credit evaluations for small and micro rural entities, thereby improving the convenience of their financing. For example, some farmers with good credit will be rated as credit households by their local rural credit cooperatives and issued a "Credit Household Loan Certificate." With the loan certificate, they can obtain a certain amount of low-interest loans, and from then on the development of agricultural production is guaranteed. As of the end of December 2014, China had established credit files for 160 million farmer households, and had carried out credit evaluations for 100 million of them. Among the farmer households with established credit files, more than 90.12 million had obtained credit support, with a loan balance of 2.2 trillion yuan.
3. Multi-Household Joint Guarantee Loans
Multi-household joint guarantee loans are loans issued by rural credit cooperatives and other financial institutions to farmer households, self-employed business owners, and others to support agricultural production or the operating turnover of self-employed business owners, with farmer households and self-employed business owners voluntarily forming joint guarantee groups (generally composed of 4-6 borrowers without direct kinship), and implementing joint guarantees among members. They mostly adopt the management method of “approved once, borrowed as needed, controlled by limit, and used on a revolving basis.”
4. Farmers' Mutual Fund Cooperative Loans
In December 2006, the China Banking Regulatory Commission issued the "Several Opinions on Adjusting and Relaxing the Access Policy for Banking Financial Institutions in Rural Areas," allowing farmers and small rural enterprises in rural areas to initiate and establish community-based credit cooperation organizations that serve shareholding members and practice democratic management by members. On February 4, 2007, the China Banking Regulatory Commission issued the "Model Charter for Rural Mutual Fund Cooperatives."
A farmers' mutual fund cooperative is an independent enterprise legal person. Its establishment must be approved by the local banking regulatory institution, and it is a community-based mutual-aid banking financial institution that provides members with deposits, loans, settlement, and other businesses. Its funds mainly come from farmers' and enterprises' shareholding, cooperative accumulation, government support, and social donations. The funds must be deposited in a custody account established by a formal financial institution. The cooperative practices self-management, and members elect a “loan approval group.” Loan recipients are limited to members only, and loan purposes are limited to serving agricultural production and business activities.
5. Innovative “Government-Bank-Insurance” Loans
In order to give full play to the incentive and policy-guiding role of fiscal funds supporting agriculture, innovate financing guarantee services, and leverage social capital into the development of the agricultural industry, various places in China have innovatively launched “Government-Bank-Insurance” business.
“Government-Bank-Insurance” is a new type of financing product in which a fund invested by government finance serves as guarantee, banks and other financial institutions provide loans to guarantee recipients that meet loan conditions, and insurance companies provide guarantee insurance for the above loans. Taking Huicheng District, Huizhou City, Guangdong Province as an example, the local government department recommends loan households within the scope of the “four major operating entities” to cooperative banks; cooperative banks issue loans to operating entities that meet loan conditions; cooperative insurance companies provide guarantee insurance services for the above loan principal. When default occurs, the government department, cooperative bank, and cooperative insurance company bear responsibility for overdue loan compensation according to the agreement signed by the three parties, among which the insurance company bears risk at 1.5 times the premium, and the government bears limited liability with the guarantee fund.
6. Rural Internet Finance Loans
At present, there are mainly three types of agriculture-related service enterprises in society, including agriculture, rural areas, and farmers service providers represented by CunCunLe, DBN, New Hope, and Noposion; e-commerce enterprises represented by Yimutian, Huinong.com, JD.com, and Taobao; and internet finance enterprises represented by CreditEase, Ant Financial, Kaixindai, and Yilongdai. These enterprises have for many years been deeply rooted in rural production, circulation, and consumption, accumulating massive amounts of farmer transaction data. These data have now become important corporate assets——big data resources. Relying on the ability of big data to judge farmers' credit, these large agriculture-related enterprises have one after another entered the rural internet finance business to provide farmers with credit loans, such as DBN's Nongyin Dai and Nongfu Dai products, and CunCunLe's CunCun Dai and CunCun Rong products.
Of course, these loan methods were all innovated against the background of farmers' property rights not being fully perfected, and in the future, as farmers' property rights are straightened out and rural internet finance develops, it is believed that farmers' loans will no longer be a difficult problem.