Government-Bank-Insurance Model Solves the Fiscal Dilemma of Supporting Agriculture

Huicheng District of Huizhou City, Guangdong Province, gives full play to the incentive and policy-guiding role of fiscal funds for supporting agriculture, makes full use of fiscal measures as an important means of resource allocation, actively innovates financing guarantee services, and launches the “government-bank-insurance” business to leverage social capital into agricultural infrastructure and industrial development, which has been welcomed by agricultural enterprises and growers.

“Government-bank-insurance” is a new type of financing product in which a fund invested by government finance serves as guarantee, banks and other financial institutions provide loans to guarantee recipients that meet loan conditions, and insurance companies provide guarantee insurance for the above loans. Their specific approach is:

Finance acts as a lever to mobilize financial resources. Huicheng District gives full play to the leverage role of fiscal funds, amplifying the amount of fund support at a ratio of 1:14. In 2014, the first phase of “government-bank-insurance” loan support funds amounted to RMB 5 million yuan, and Postal Savings Bank arranged the loan scale within the ratio of 1:14, that is, the first-phase loan scale was no more than 70 million RMB. On the basis of summarizing the 2014 “government-bank-insurance” experience, in 2015, it was planned to invest 10 million yuan for cooperative agricultural loans, leveraging a bank loan scale of 140 million yuan.

All parties participate together to pool strength for financing guarantees. Huicheng District gives full play to the advantages of government departments being familiar with new types of agricultural business entities, and banks and insurance companies being familiar with project investigation, evaluation and risk control, so as to achieve complementary advantages. Government departments recommend loan borrowers within the scope of the “four major business entities” to cooperative banks; cooperative banks issue loans to business entities that meet loan conditions; cooperative insurance companies provide guarantee insurance services for the principal of the above loans.

⟦NL> The government provides guarantees to prevent and control financial risks. Government departments, cooperative banks and cooperative insurance companies shall, according to the provisions of the agreements signed, bear responsibility for compensation in the event of overdue loans. That is, once a business entity cannot repay a loan, the relevant risks will be shared jointly by the bank, the insurance company and the government according to the agreement, among which the insurance company bears risk at 1.5 times the premium, and the government bears limited liability with the guarantee deposit. In the first phase of “government-bank-insurance” loans, applications from 15 enterprises have been accepted, with loan applications totaling 53.5 million yuan; among them, the loan business of 12 enterprises has entered the approval procedures of the banking and insurance departments. As of March, 41 million yuan in loans had been issued, and loans for other enterprises will be issued gradually.

Loans have subsidies to reduce financing costs. Government departments subsidize guarantee insurance premiums and subsidize loan interest proportionally, helping to reduce the financing costs of business entities. In 2014, Huicheng District invested 8.6 million yuan to implement “government-bank-insurance” cooperative agricultural loans, of which 5 million yuan was used for guarantee deposits, 1.4 million yuan for premium subsidies, and 2.2 million yuan for loan interest subsidies.

However, due to reasons such as the high risks of agricultural production and the weak risk resistance of entities, the “government-bank-insurance” business still appears insufficient in risk control. How to continue improving the fiscal approach to supporting agriculture, mobilize financial resources, and effectively prevent and control risks requires continued exploration and innovation in practice. In this regard, Director Ma Jian'an of the Office of the Leading Group for the Construction of the Modern Agriculture Demonstration Zone in Huicheng District suggested:

Change direct fiscal input into indirect input, and one-time input into lasting input. Change from direct fiscal input to indirect input, and through measures such as interest subsidies, rewards, grants, risk compensation, and tax and fee reductions, drive more financial and social funds into agriculture and rural areas.

Expand the coverage of fiscal interest subsidies for agriculture-related project loans and lower the threshold for interest subsidies. For social capital invested in agricultural projects, support should mainly be provided in the form of loan interest subsidies, reducing investors' capital costs, creating an atmosphere in which “as long as you invest in agriculture, you can enjoy interest subsidies,” and increasing the proportion of interest subsidy funds in fiscal funds for supporting agriculture.

Make full use of reward and subsidy measures to support the construction of agricultural projects. For agricultural construction projects that conform to planning, regardless of the construction entity, treat them equally, implement different reward and subsidy standards according to different project construction contents, and give investors one-time reward and subsidy for the approved investment amount.