An Analysis of the Four Major Factors Behind Difficulties in Obtaining Loans for Farmers' Professional Cooperatives

Since the implementation of the "Law on Farmers' Professional Cooperatives," farmers' professional cooperatives have shown a trend of rapid development, injecting vitality into the advancement of modern agriculture. Linking farmers internally and markets externally, cooperatives are becoming a new engine for promoting modern agricultural development. But as a new type of mutual-aid economic organization marked mainly by farmers' voluntary association and democratic management, in the course of development, difficulties in obtaining loans have become a bottleneck restricting their further development and growth. Our reporter took Yongqing County, Hebei Province, as an example to explore and study the four factors behind difficulties in obtaining loans for farmers' professional cooperatives.

As of the end of February 2015, the total number of registered farmers' cooperatives in Yongqing County, Hebei Province, had reached 337, including 13 provincial-level farmers' cooperative demonstration cooperatives and 32 municipal-level farmers' cooperative demonstration cooperatives, with capital contributions amounting to 370 million yuan, 2,085 members, radiating and driving more than 50,000 farming households, helping farmers increase income by 220 million yuan, and members' households achieving a per capita net income of more than 9,000 yuan. According to a survey of the financing situation of farmers' professional cooperatives in Yongqing County, 182 were unable to develop because they could not get bank loans, accounting for 54%; 89 had a strong demand for loans, accounting for 26.4%. As of the end of February 2015, only 3 farmers' professional cooperatives in Yongqing County had engaged in credit business with banks, rural credit cooperatives, and other agriculture-related financial institutions, accounting for 0.89% of the county's total farmers' professional cooperatives and 3.4% of cooperatives with loan demand.

The main factors causing difficulties in obtaining loans for farmers' professional cooperatives

First, finding collateral is difficult. Most members of farmers' professional cooperatives participate through household contracting or capital investment in operations, and lack assets that can be used as collateral. The mortgage of immovable property such as cooperative farmland, homestead land, and factory buildings also faces legal constraints, while movable property such as grain, fruit, vegetables, and livestock often does not meet the standards for loan collateral stipulated by financial institutions. Under existing loan conditions of financial institutions, financial institutions usually require borrowers to provide corresponding collateral to reduce the risk of default, thereby increasing the difficulty for cooperatives to obtain loans from formal financial institutions.

Second, seeking guarantees is difficult. According to the survey, the market access threshold for farmers' cooperatives is currently lower than that for ordinary enterprises. A cooperative can be registered as long as it has more than 5 farming households, and no cash registration is required. Overly broad market access conditions have led to the rapid development of cooperatives in recent years. Most are still at the stage of primary agricultural product production and sales, and can only simply organize production according to market conditions, making it difficult for them to adapt to market changes. Market risks and natural disaster risks are relatively high. In addition, agricultural projects have long operating cycles and low profits. These factors all contribute to the excessively high risks of farmers' cooperatives, making it difficult for cooperatives to find related enterprises to provide guarantees. Commercial guarantee companies are also unwilling to provide guarantees because of unstable loans, dispersed risks, and low returns, which restricts their effective access to loans.

Third, self-standardization is difficult. According to the survey, most farmers' professional cooperatives are currently in the early stage of growth, with non-standard internal management, unsound financial systems, and loose institutional management. Some cooperatives have only obtained a business license from the industry and commerce department and are nominally legal institutions, but their functional role cannot be brought into full play. They are far from the conditions required by financial institutions for lending, namely "clear enterprise property rights, standardized management, and relatively strong profitability and repayment capacity," which makes it difficult for financial institutions to meet their loan needs.

Fourth, financial constraints make investment difficult. At present, although agriculture-related financial institutions include rural cooperative financial institutions (rural credit cooperatives, rural cooperative banks), Agricultural Bank of China, Agricultural Development Bank of China, Postal Savings Bank of China, village and township banks, and others, only rural cooperative financial institutions truly provide financial services for farmers' professional cooperatives. A single rural financial financing channel cannot meet farmers' professional cooperatives' demand for funds. At the same time, influenced by the assessment orientation of financial institutions, which emphasizes their own benefits over social benefits, immediate interests over long-term development, and deposit and loan scale over development quality, grassroots financial institutions tend to take short-term operating actions and seek quick success and instant benefits, lacking the environment and motivation to cultivate and tap the rural financial market. Furthermore, rural small and medium-sized financial institutions lack innovative incentive mechanisms, working mechanisms, and innovative professional talent, and are unable to tailor financing products for farmers' professional cooperatives, which restricts the effective investment of loans by financial institutions.

Countermeasures and suggestions for effectively increasing loan investment in farmers' professional cooperatives

First, establish and improve preferential policies such as land transfer mortgages and taxation. Relevant state departments should promptly improve laws and regulations concerning rural land mortgages and transfers, and enable the paid transfer of land management rights held by farmers; issue corresponding tax preferential policies to provide interest subsidies for loans to farmers' professional cooperatives and reduce the burden of loan costs.

Second, improve the credit guarantee system for farmers' professional cooperatives. Relevant government departments, leading enterprises, and others should jointly invest to establish guarantee organizations to provide loan guarantee services for farmers' professional cooperatives. Financial departments should increase capital investment, expand the scale of guarantees, enhance guarantee capacity, and promote the healthy development of guarantee companies. Establish mutual-aid guarantee organizations. Vigorously promote the joint guarantee loan system, under which cooperatives organize members to sign joint guarantee agreements on a voluntary basis, and improve members' ability to obtain loans through mutual protection and mutual benefit and the sharing of risks. Rely on farmers' professional cooperative federations to organize farmers' professional cooperative credit guarantee companies to provide credit guarantees for member units and their members.

Third, guide farmers' professional cooperatives to establish standardized internal control systems. Relevant departments should strengthen standardized management of farmers' professional cooperatives, strictly approve the procedures for the establishment and alteration of farmers' professional cooperatives, urge them to establish and improve internal management rules and regulations, strictly implement relevant national financial accounting systems, and guide the healthy development of farmers' professional cooperatives.

Fourth, improve the rural financial service system. Continue to give play to the role of rural cooperative financial institutions as the main force supporting agriculture, increase credit loan limits for legal persons and ordinary members of farmers' professional cooperatives, explore financial products suited to the needs of farmers' professional cooperatives, and improve new businesses such as rural housing mortgage loans and mortgage loans for the transfer of rural land contractual management rights; further relax market access policies for rural finance, provide broader development space for new rural financial institutions such as village and township banks, rural mutual fund cooperatives, and microcredit companies, strengthen the financial team supporting agriculture, and broaden the fields of agriculture-supporting development.