Rural finance: a chicken rib or a blue ocean?

The annual Langzhong ginger harvest has already come to an end, but Wang Shijun, who has been toiling in the ginger purchasing and processing business for many years, is not at peace.

“This year many banks have tightened their lending windows considerably, and the loan the company needed to purchase ginger had still not been approved. Fortunately, a while ago Hengfeng Bank granted us tens of millions, which covered the purchase payments for more than 4,000 farming households.” Wang Shijun, chairman of Sichuan Langzhong Yuqun Agricultural Products Development Co., Ltd., told reporters, “Fresh agricultural products cannot be stored for long; they go bad in a couple of days, so the financial pressure during the concentrated purchasing period is enormous.”

Like the ginger in Langzhong, the development of many agricultural industries has a special and urgent need for financial support; at the same time, because agriculture faces relatively high natural and market risks, and rural areas generally lack collateral, for most financial institutions the business of agriculture, rural areas and farmers has never been particularly favored.

Is the rural financial market a tasteless “chicken rib,” or a promising “blue ocean”? Hengfeng Bank, which provided the loan to Wang Shijun, has in recent years been deeply cultivating the rural financial market, and while serving agriculture, rural areas and farmers it has also achieved rapid development of its own. As a nationwide joint-stock commercial bank, Hengfeng's exploration offers a certain reference value for many financial institutions.

High risk, low return: can financial support for agriculture achieve a win-win?

“Serving agriculture, rural areas and farmers cannot focus only on short-term interests; you must take a long-term view”

With several banks tightening their loans, the reason Wang Shijun's company could obtain a loan from Hengfeng Bank lies in Hengfeng's tilt toward agriculture, rural areas and farmers loans. Sun Tingting, deputy general manager of the Corporate Business Management Department of Hengfeng Bank's Chengdu Branch, explained that according to the head office's requirements, each year's newly added loan quota must first satisfy the needs of agriculture, rural areas and farmers and small and micro enterprises before other customers are considered. Of the new loan indicators for the Chengdu Branch this year, more than 90% went to these enterprises.

Given the inherent weakness of the agricultural industry, does directing more loans there increase the bank's risk and affect the bank's development? In response, Hu Haifeng, chief brand officer of Hengfeng Bank, explained that precisely because agriculture, rural areas and farmers have weaker risk resistance, banks cannot merely add flowers to brocade; they must send charcoal in snowy weather, and must not focus only on short-term interests but take a long-term view. Hengfeng's newly opened outlets serving agriculture, rural areas and farmers are not required to make money within three years; this is the bank's social responsibility.

“Of course, banks also have to talk about returns.” Hu Haifeng admitted, “We keep our feet on the ground and take root in agriculture, rural areas and farmers precisely because we have truly discovered that a blue ocean exists here. If a bank fully considers the development of agriculture, rural areas and farmers and small and micro enterprises, establishes a risk control system suited to them, and cooperates with them, then as agriculture, rural areas and farmers and small and micro enterprises develop, social benefits and economic benefits can both be reaped.”

The cooperation between Guang'an Hengfeng Village and Township Bank and Sichuan Guang'an Weiye Green Horticulture Company is a vivid example. Company chairman Tang Yanzi told reporters that her company contracted some barren hills in Guang'an for reclamation, operating nursery stock and flowers, fruit production, and so on. The investment cycle is relatively long, and the funds needed at the initial stage are not too many, but they are crucial.

“Agricultural loans are generally not valued by banks because of high risk and low returns.” Tang Yanzi said, “But Hengfeng gave the company a loan of more than 4 million yuan right at the start of its entrepreneurship, which truly was sending charcoal in snowy weather.” Now the company has entered a track of sound development and has also become a loyal customer of Hengfeng; the two sides maintain a good cooperative relationship, forming a “win-win” situation.

“In view of the reality that agriculture-related loans carry relatively high risk, we have also raised our tolerance for agriculture-related non-performing loans.” Ran Hengmao, deputy governor of Hengfeng Bank's Chengdu Branch, told reporters, “For example, if an agriculture-related enterprise encounters temporary operating difficulties, our branch will certainly not withdraw the loan; instead, with a positive and supportive attitude, we let them slowly catch their breath. For agriculture-related loans issued by business staff and account managers, risks are strictly controlled beforehand, but as long as operations follow procedures and there is no personal moral hazard, liability is generally exempted.”

Lacking collateral and with highly time-sensitive loan needs, how can the special needs of agriculture, rural areas and farmers customers be met?

Turning sitting merchants into traveling merchants, designing products “tailor-made”

“Very worry-free, very simple; once the loan application materials are submitted, as long as there are no problems, the process is completed quickly.” Leng Zhiheng, chairman of Chengdu Kunshan Agricultural Products Logistics Co., Ltd., said that when it comes to cooperation with banks, his most prominent feeling is “convenience.”

The first cooperation between Kunshan Agricultural Products Logistics Company and Hengfeng was at the end of 2011, when the enterprise was expanding rapidly and the New Year was approaching; it needed to purchase and store a great deal of agricultural products, advancing nearly 10 million yuan in funds. “We submitted the loan application to Hengfeng in mid-to-late November, and at the time we worried the loan would not be approved before the end of the year. Unexpectedly, in just about a month, on December 16, the loan was disbursed. Later, renewal loans were even faster, each taking only about a week, and they never delayed the purchase of agricultural products.”

The loan needs of Kunshan Agricultural Products Logistics Company are very representative in the agricultural industry. Owing to the characteristics of agriculture, many agriculture-related loans often have features such as strong time sensitivity, strong seasonality, and concentrated demand periods, and Hengfeng's fast approval process for agriculture-related loans fits well with the needs of customers and the development of agriculture, rural areas and farmers.

“Considering the special nature of agriculture, rural areas and farmers loans, we have opened a ‘green channel,’ placing due diligence, risk review, credit review, and credit approval by the loan review committee for agriculture, rural areas and farmers enterprise customers first in line and giving them priority.” Song Hao, governor of Hengfeng Bank's Chengdu Branch, said.

“Be a ‘very convenient’ bank.” Hu Haifeng explained Hengfeng's philosophy of serving agriculture, rural areas and farmers this way: “To open up the blue ocean of the rural financial market, banks must change from passive to active, from sitting merchants to traveling merchants, and in response to the various special circumstances and diverse needs of agriculture, rural areas and farmers, ‘tailor’ products to customers' measurements.”

The idea of turning sitting merchants into traveling merchants is vividly embodied in Sichuan Guang'an Hengfeng Village and Township Bank. This village and township bank, initiated and established by Hengfeng Bank, has continuously organized account managers to go deep into townships and rural areas to investigate since its establishment at the end of 2010, and has successively opened the doors of more than 1,000 farming households and more than 100 small and micro enterprises. On the basis of thorough research, it has continuously reformed and innovated traditional single-function products and gradually developed a series of products suited to local economic and social development needs.

“Whatever customers need, we provide the corresponding products and services.” Xing Zailin, governor of Guang'an Hengfeng Village and Township Bank, said, “For example, in response to the problem that rural land and houses lack property rights and collateral is generally insufficient, we developed the ‘Full Amount Loan’ credit product. Ordinary banks lend about 70% of the collateral value, while ours can reach 120% of the collateral value.” Products and methods of innovation like the “Full Amount Loan” are still numerous across Hengfeng's branches at all levels and in all localities.

With insufficient grassroots outlets, how can agriculture, rural areas and farmers be better served?

Based on its own characteristics, support new types of business entities, and drive the industrial chain

He Chuanrong of Shigunba Village, Gongxing Town, Nanchong City, Sichuan, joined the Nanchong Qinwei Laying Hen Professional Cooperative two years ago, entered the laying hen breeding industrial chain, and raised 4,000 laying hens.

“Better than working as a migrant worker; outside you only earn one or two thousand yuan a month, and you still have living expenses.” He Chuanrong said, “In the past we were all ‘bag burners,’ money came in the left hand and went out the right. Now raising chickens, last year alone brought in 200,000, right. I can take care of the children and the elderly too.”

He Chuanrong's current “happy life” is due not only to the cooperative's support, but also to a contribution from Hengfeng Bank.

Raising chickens requires capital: building chicken houses, buying chicken cages and chicks, and feeding them feed. By the time you see “money coming back,” it takes at least four or five months no matter what. He Chuanrong told reporters that relying only on her own meager savings, raising these 4,000 chickens would be very difficult; it all depended on the cooperative advancing the money. But that way, the cooperative's financial pressure became very great.

“Last year Hengfeng Bank lent our cooperative 500,000 in working capital, and the interest rate was much lower than ordinary loans.” Huang Min, chairman of the cooperative, said that with the support of these funds, the cooperative's development has been relatively smooth; today it has 50 members, and the laying hen inventory has reached 300,000.

By supporting leading enterprises, cooperatives, and other new types of business entities to drive industrial development, thereby enabling scattered farmers to benefit from the entire industrial chain, this is Hengfeng Bank's main direction in serving agriculture, rural areas and farmers.

“When supporting agriculture we must highlight our own characteristics. Because we have few outlets and few staff, there is no way to spread ourselves as broadly as some financial institutions. Therefore, in supporting agriculture we focus on selecting leading enterprises, cooperatives, and so on, to drive the development of industries related to the entire agricultural chain before, during, and after production.” Li Jiurun, governor of Hengfeng Bank's Nanchong Branch, said.

In fact, this concept of Hengfeng's also conforms to the current situation of financial demand for agriculture, rural areas and farmers in the process of urbanization. “Today's agriculture, rural areas and farmers are very different from the past.” Xing Zailin said, “In our research we found that the demand for scattered loans by farming households is very small; if they need three thousand or five thousand yuan to buy seeds and fertilizer, they just borrow from relatives and friends. Looking only at rural capital demand, there are more cooperatives and large households.”

It can be said that agriculture, rural areas and farmers are transforming, and banks serving agriculture, rural areas and farmers also need to transform. “The direction must be determined according to the development of agriculture, rural areas and farmers, the market must be segmented, and we must transform and grow together with enterprises and with agriculture, rural areas and farmers.” Hu Haifeng said.