"Loan fraud" incident sounds alarm for rural financial security
Many farmers in Tianzhen County, Datong City, Shanxi, discovered that they had inexplicably been saddled with loans that were overdue and unpaid, with the lending bank being the Tianzhen County Rural Credit Cooperative Union. Word of this spread quickly, and many local people, worried that they might suffer the same fate, lined up at the local People's Bank to make inquiries. The banking regulatory authorities instructed the Tianzhen County Credit Union to conduct a self-inspection. Local police said that more than 50 people had come forward to report being victims of “loan fraud”, but no case had yet been formally opened. (Beijing Times, July 13)
While we worry about whether the buoyant stock market might transmit capital market risks, in rural areas, if the grassroots financial institutions dominated by credit unions fall prey to regulatory failure and hollowed-out systems, the resulting economic and social risks are equally not to be underestimated.
Exactly how many farmers in Tianzhen County have been victims of “loan fraud”? This question is no longer a matter of personal privacy but has become a public issue concerning local public interests and order stability. Police say more than 50 people have reported the matter, while a staff member at the local People's Bank responsible for inquiries said that among the people he had checked, “hundreds said they had been the victims of identity theft for loans”. It is worth noting that local personal credit report inquiries have been booked through to after January 4, 2016, and the total number of “loan fraud” victims is likely to exceed three digits.
How many people, and how much money, have been secretly manipulated by the local credit union? This certainly awaits careful investigation by the relevant authorities, but what is more worth asking is why such a massive suspected loan fraud case was neither discovered through routine inspections by the local banking regulator nor brought to light through internal whistleblowing, but was only “accidentally” learned when farmers went to apply for loans -- how did the strict and meticulous financial system become deaf and mute?
A search of news reports shows that similar cases are not uncommon, such as “Yanling Credit Union in Zhejiang fraudulently obtained 1.5 million yuan from a bank and used money to silence whistleblowers” and “Credit union issues loans to dead people, causing guarantors to fall into credit crisis”. As early as 2009, the media revealed that many rural credit cooperatives in Shanxi had fallen into an unprecedented “credit crisis”, with missing deposits and illegal lending, among other problems; as late as 2011, the media was still warning of “frequent major cases” at credit unions, and using Henan as an example, analyzed more than a dozen major corruption cases at credit unions: three provincial credit union leaders “corrupt one after another”, a “minor director” at the Shangqiu credit union committed a “staggering major case”...... Unfortunately, after all these years, rural credit cooperatives remain a high-risk area in grassroots financial risks. In the words of industry insiders, “due to their numerous outlets and wide coverage, the difficulty of management, the failure to truly improve the management system, relatively weak internal management, and the generally low quality of employees, among other factors, the credit union system meets almost all the conditions for operational risk to occur.”
⟦NL> Judging from the “loan fraud” incident in Tianzhen County, Shanxi, the absurdity of the local credit union's lending procedures is outrageous. Ordinary commercial financial loans require in-person interviews and in-person signing, yet the people never appeared and the signatures were forged, and such batch loans were actually issued in Tianzhen County. From execution to review, from control to supervision, how many normal institutional constraints were missing? Investigating such matters is not complicated; verifying the signatures should reveal the truth. In the face of suspected hundreds of “loan fraud” victims, the local banking regulator merely ordered a “self-inspection”, and the police did not open a case -- is this not too derelict in their duties?
The total funds of rural credit cooperatives may be “negligible”, but what is involved is mostly the hard-earned money of millions of farming households, and it concerns agricultural development, farmers' livelihoods, and rural stability. According to the China Banking Regulatory Commission Annual Report 2013, by the end of 2013, there were 2,393 legal entities of rural credit cooperatives, rural commercial banks, and rural cooperative banks nationwide, accounting for 60.6% of the total number of banking legal entities in the country. It can be seen that against the backdrop of vigorous mixed-ownership reform in finance, paying attention to rural financial security and properly supervising grassroots credit risks is also a major matter concerning the national economy and people's livelihood.