Internet finance is actively moving into villages, but development challenges must be faced
Under the “Internet Plus” boom, more and more Internet companies are beginning to “test the waters” in rural finance. Facing a market potential of one trillion, rural Internet finance currently faces many challenges in areas such as information symmetry and risk control.
“Reaching villages and households” is just getting started
“This online lending is very good. In half an hour I raised 2 million yuan in development funds for a seafood project. In the future, I won’t have to worry about funds like before!” said Huang Ensheng, a “seafood tycoon” from Songbai Village, Dongxing Town, Fangchenggang City, Guangxi. Benefiting from the P2P online lending platform, Huang Ensheng raised 2 million yuan in development funds in just half an hour, and the investment funds for the border seafood business project he and more than a dozen fellow villagers planned were secured.
To better implement “Internet financial services for agriculture, rural areas and farmers” and make them more operable, the Fangchenggang City government in Guangxi, together with Guangxi Financial Investment Group, reached cooperation with Guangzhou Zhenghang Internet Financial Information Service Co., Ltd. (Zhengqin Finance). This year, they successfully introduced a P2P online lending platform to rural areas of Fangchenggang City.
Internet finance, mobile banking, and P2P online lending, these “financial buzzwords” popular in cities, quickly became “fashionable topics” of conversation among villagers in Songbai Village on the Guangxi border. Many farmers like Huang Ensheng relied on online lending platforms to solve their development funding problems.
In recent years, rural Internet finance has continuously explored and innovated, breaking through traditional rural finance models. For example, companies such as Alibaba, JD.com, and Yimutian Group have invested development projects and funds in rural areas.
Experts believe that rural areas will be a brand-new market for Internet finance development. China has a large rural population, and the huge market plus the inadequacy of traditional financial services provide room for the development of e-commerce and Internet finance. Relevant statistics show that by the end of 2014, China’s rural permanent resident population was 620 million, and the scale of rural Internet users exceeded 178 million.
“The new generation of farmers is gradually improving its understanding of Internet technology. Taobao villages and Taobao towns in some places are developing rapidly, and e-commerce has become a new economic form in rural areas.” In the view of Chi Fulin, president of the China (Hainan) Institute for Reform and Development, rural Internet finance is now at a development “outlet.”
Industry insiders believe that compared with traditional rural finance, Internet finance has obvious “complementary points,” and Internet finance can leverage advantages such as a low threshold and high efficiency. At the same time, it can cut related services into every link of the agricultural industry chain to ease the contradiction between mismatched financial demand and supply and effectively improve the efficiency of financial allocation; in terms of diversified and personalized customer service, Internet finance has advantages in rural areas, specifically shown in its beneficial supplement to traditional financial models.
Unlimited potential, severe challenges
Industry insiders believe that Internet finance provides huge room for growth and revolution in balancing traditional financial supply and demand. If the large amount of financial demand in the “agriculture, rural areas and farmers” sector is released to a certain extent, it will certainly be a market “blue ocean,” but development faces challenges.
First, information asymmetry and the lack of an effective evaluation mechanism. Deng Jinhong, head of Beijing Yimutian Group, pointed out that traditional agricultural product transactions are accustomed to the physical transaction model of “cash on delivery, goods on delivery.” Because the degree of informatization of rural household assets is low, financial institutions find it very difficult to judge the true income of farming households and the actual consumption of their funds. This information asymmetry makes it difficult for the financial sector to lend to farming households with confidence. At the same time, in different markets and different rural areas, the value of the same house or one mu of land varies greatly. At present, there are no professional institutions or evaluation standards to effectively and accurately evaluate farming household assets.
Second, the high uncertainty of agricultural production and transactions leads to a high risk of bad debts. Deng Jinhong believes that Internet finance companies use the advantages of Internet technology to issue credit limits to individuals, small and micro enterprises, and dealers, and provide extremely convenient credit services. However, at present, much agricultural product production still mainly depends on “the weather.” Many farmers follow trends in planting or rely on experience in planting, making production and transactions uncontrollable and making debt repayment uncertain.
Third, financial infrastructure is weak. Industry insiders admit that at present some rural areas have limited financial institution outlets, weak infrastructure, and insufficient financial services. “Lack of money” has become a real bottleneck for many farmers exploring entrepreneurship and developing e-commerce.
Fourth, supervision is still incomplete. Experts believe that many Internet finance companies have poured into the rural market, but at present the Internet finance field has, to varying degrees, a problem of absent financial supervision. In particular, P2P online bandwidth has not yet established clear and unified regulatory rules, and some Internet financial institutions lack guarantees for fund security and information security. These internal industry problems remain to be improved.
Prevent and control risks, release vitality
Some industry insiders believe that in the face of market opportunities, it will be necessary in the future to improve mechanisms, actively promote the opening of rural finance, use practical measures to prevent and control risks, and improve rural financial infrastructure to escort the efficient development of rural Internet finance.
First, establish a systematic “agriculture, rural areas and farmers” Internet finance system. Experts point out that a single policy cannot solve rural financial problems. Rural areas have their own characteristics, and it is not appropriate to simply transplant urban experience. They suggest establishing a financial service system that suits agricultural characteristics, rural realities, and farmers’ needs, improving the coverage and penetration of formal financial institutions in rural areas, and giving full play to the positive role of new rural cooperative finance and microfinance.
Second, accelerate market-oriented rural financial reform and innovation. “To develop rural Internet finance, the most important thing is market opening.” Chi Fulin said, “It is suggested to accelerate the opening of rural finance, encourage social capital to enter rural areas, and rely on the Internet, big data, and other means to provide farmers with new financial services; encourage traditional e-commerce platforms, while providing rural areas with commodity services, to accelerate product innovation and model innovation in rural Internet finance, give full play to the outstanding advantages of Internet finance in diversification and personalization, and enrich the rural financial market.”
In addition, it is necessary to improve the asset evaluation mechanism and the Internet finance supervision mechanism, and strengthen the construction of the credit system and risk early warning. Experts suggest that while comprehensively carrying out the confirmation, registration, and certification of land rights, it is necessary to explore the establishment of a price formation mechanism for the transfer of land contractual management rights and a price evaluation mechanism for crops on the land. Through legislation, regulate the development of Internet finance, clarify issues such as the status of entities involved in Internet finance development, business scope, development direction, and regulatory systems and mechanisms, and systematically build related supporting legal systems.
Huang Zhen, director of the Institute of Financial Law at the Central University of Finance and Economics, pointed out that the development of rural Internet finance should give play to its late-mover advantages, promote the combination of agricultural industrialization and the new generation of Internet technology, form a big data system, and promote the healthy and sound development of rural Internet finance by establishing big data credit reporting, risk control, and monitoring mechanisms.
Industry insiders suggest that while improving rural financial service facilities, publicity should be increased, farmers’ awareness of Internet finance should be improved, and Internet finance should be promoted to “go into villages and households,” so as to help more rural areas embark on the path of health and prosperity.