How to Break the Bottleneck in Agriculture-Related Credit? Government and Banks Join Hands to Explore a New Path
For small and micro enterprises in agriculture and poor farmers below the medium level, funding is a major problem for their survival and development, which requires providers of “three rural” financial services to uphold the concept of breaking even with small profits.
As a weak link in the real economy, the “three rural” sector urgently needs to be irrigated by the living water of finance. Giving full play to the government's guiding role, innovating guarantee or collateral methods for agriculture-related loans, and guiding more funds to support the “three rural” sector in becoming bigger and stronger are of practical significance.
Widening Channels Beyond Precision
⟦NL> Since the beginning of this year, the state has continued to implement targeted regulatory measures for financial support of the “three rural” sector. In February, the People's Bank of China additionally lowered the deposit reserve ratio by 0.5 percentage points for city commercial banks and non-county rural commercial banks whose small and micro enterprise loan proportion met the targeted reserve requirement reduction standard, and additionally lowered the reserve ratio by 4 percentage points for the Agricultural Development Bank of China. In April, the People's Bank of China made a targeted reserve requirement cut of 1 percentage point for rural financial institutions such as rural credit cooperatives and village and township banks, and lowered the deposit reserve ratio of rural cooperative banks to the level of rural credit cooperatives; additionally lowered the deposit reserve ratio by 2 percentage points for the Agricultural Development Bank of China; and lowered the deposit reserve ratio by 0.5 percentage points for commercial banks that met prudent operation requirements and whose “three rural” and small and micro enterprise loans reached a certain proportion. In June, on the basis of the earlier reserve requirement cuts, the People's Bank of China also included large commercial banks and finance companies in the scope of targeted reserve requirement cuts, lowering the deposit reserve ratio by 0.5 percentage points for city commercial banks and non-county rural commercial banks whose “three rural” loan proportion met the targeted reserve requirement reduction standard; and lowering the deposit reserve ratio by 0.5 percentage points for large state-owned commercial banks, joint-stock commercial banks and foreign-funded banks whose “three rural” or small and micro enterprise loans met the targeted reserve requirement reduction standard.
“The implementation of these precise policies has provided strong support for the stable growth of agriculture-related credit in the first half of the year.” Industry insiders said that looking ahead to the second half of the year, new business forms, new reforms and new transformations will bring new development opportunities for the “three rural” sector and county-level economic and financial development, while at the same time the structural risks and overall operating pressure facing rural finance will also become prominent.
In view of this, Zhao Xijun, vice dean of the School of Finance at Renmin University of China, said that it is necessary to step outside the existing credit structure, broaden thinking, provide as many financing methods as possible that can reduce principal and interest payments for the “three rural” sector, and build a multi-level, multi-channel financing system.
Make Good Use of the Government's “Hand”
“It is very necessary to strengthen government and fiscal support in the weak links of the real economy, and this is also one reason why models such as joint credit enhancement and mutual guarantee funds are widely used in the field of credit support for agriculture.” Du Xiaoshan, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, said in an interview with an Economic Daily reporter that this touches on the “pain point” of difficult and expensive financing for the “three rural” sector and truly helps the development of the “three rural” sector. Du Xiaoshan believes that for small and micro enterprises in agriculture and poor farmers below the medium level, funding is a major problem for their survival and development, which requires providers of “three rural” financial services to uphold the concept of breaking even with small profits. Only by increasing government support in the middle can this concept be sustained.
An important part of this is the establishment of a credit enhancement system. Not long ago, the Ministry of Finance, the Ministry of Agriculture and the China Banking Regulatory Commission issued the Guiding Opinions on Fiscal Support for Establishing an Agricultural Credit Guarantee System, establishing a fiscally supported agricultural credit guarantee system. “Only when the government and the market each play their roles and cooperate with each other can the financing difficulties of the weak links in the real economy truly be solved,” industry insiders said. Financial institutions should strengthen communication and cooperation with governments at all levels, promote local governments to set up policy-based guarantee companies and risk compensation funds, further strengthen the application of the government credit enhancement model, establish risk mitigation mechanisms, and effectively disperse business risks.
Working Hard on Credit Enhancement
Since the Shandong Provincial Department of Finance and financial institutions innovatively launched the “financing credit enhancement” loan model, as of the end of June 2015, finance departments at all levels in Shandong Province had invested a total of 284 million yuan, including 214 million yuan from the provincial finance department and 70 million yuan in matching investment from city and county finance departments. At present, 33 of the 36 pilot counties for financing credit enhancement business have started lending, and the cooperating banks have expanded from the initial two to all banks, with a cumulative total of 290 million yuan in preferential loans issued to 375 agricultural operating entities.
Yi Hu, president of the Shandong Branch of Agricultural Bank of China, believes that financing credit enhancement solves the problem of farmers lacking physical collateral for loans and is an attempt to innovate the mechanism for investment in supporting agriculture. “In selecting credit enhancement targets, support has been tilted toward small and medium-sized agricultural enterprises, farmers' cooperatives, family farms and specialized large households, achieving a win-win situation for new rural operating entities, finance and banks. Taking the financing credit enhancement business of Agricultural Bank of China Shandong Branch as an example, it has now been rolled out in 25 county-level branches, with 140 million yuan in loans issued.”
In fact, similar models have also appeared in the field of credit support for agriculture in other regions. For example, the Chengde City Branch of the Agricultural Development Bank of China in Hebei Province closely combined with local realities, strengthened cooperation with the government and various functional departments, and actively explored and implemented the “joint credit enhancement” model for agricultural small enterprise loans, namely projects recommended by the government and relevant functional departments, guarantees provided by the agricultural policy-based financial guarantee center, and independent loan review by the Agricultural Development Bank of China, thereby building a platform for financing guarantees and joint credit enhancement and giving play to the guiding and supporting role of policy banks.