Rural Finance Requires Thinking Beyond Traditional Finance

In the 15 years since the Boao Forum for Asia was held, it has for the first time opened a rural topic, and it was the first forum of this year. At the sub-forum “Inclusive Finance: Exploring a New Model of Rural Financial Reform” co-hosted by the magazine “Boao Review” and the Hainan Rural Credit Union, participating guests generally agreed that, in light of the characteristics of the rural economy, doing rural finance well requires “stepping outside finance to do finance”.

“Access to normal financial services is a natural human right of every citizen.” Li Yang, vice president of the Chinese Academy of Social Sciences, said frankly that many domestic financial institutions set up branches in rural areas more to absorb funds from rural areas, and rarely truly serve farmers.

In the view of Wu Weixiong, chairman of the Hainan Rural Credit Union, inclusive finance is the way out for rural financial reform: “inclusive” means making it easy for farmers to get loans, and “beneficial” means making loans cheap for farmers. To do inclusive finance, one should step outside traditional financial thinking and use market means to achieve sustainability. As long as financial institutions' mechanism innovation, regulators' differentiated measures and the government's fiscal and tax policies work together on all three fronts, inclusive finance can achieve win-win outcomes for all.

“For a very long period, rural credit cooperatives and the Agricultural Bank of China were the main force in China's rural financial services, but how to properly handle the commercial nature of the Agricultural Bank and the cooperative nature of rural credit cooperatives has never found a suitable path. Looking at the new round of rural credit cooperative reform that began in 2003, rural credit cooperatives are rooted in rural areas; although they are bound to take the path of commercialisation and shareholding reform, their service targets should still be mainly rural.” Wu Xiaoling, vice chairwoman of the Financial and Economic Affairs Committee of the National People's Congress Standing Committee, drawing on her more than 30 years of experience with rural financial reform, believed that China urgently needs to establish a rural financial system combining commercial finance, cooperative finance and policy finance, must take the path of rural cooperative finance combining production, sales and credit cooperation, and that rural finance urgently needs to connect with farmers' organisation. Only in this way can commercial sustainability be ensured.

Although the Hainan Rural Credit Union was the last provincial-level rural credit union in the country to undergo reform, over the past 7 years it has been exploring inclusive finance to solve the problems of farmers finding loans difficult and expensive, and has developed a relatively scientific and complete “Hainan Rural Credit Small Loan Credit Support for Agriculture Model”, which won the second prize for scientific and technological progress from the People's Bank of China. The Hainan Rural Credit Union also went from a “hot potato” near the brink of bankruptcy, with 5.46 billion yuan in losses on the books and a non-performing loan ratio of more than 88%, to ranking last year among Hainan's strong banks with a net profit of 1.13 billion yuan, tax payments of 860 million yuan, and a non-performing ratio of less than 5%.

In order to achieve the word “inclusive”, the Hainan Rural Credit Union innovated the “five handovers model”: first, hand the loan approval authority to farmers; for credit loans of less than 20,000 yuan, as long as farmers have no negative list and voluntarily form joint guarantee groups of 3~5 households, credit officers must issue them loans of an appropriate amount; second, hand the loan interest rate pricing authority to farmers, with an original “integrity reward” system for small loans, in which the loan interest rate consists of two parts, “actual collected interest rate + integrity reward rate”, so that the more honestly farmers repay, the lower their loan interest rate; third, hand the wage distribution authority to the credit technicians themselves, with more pay for more work and more pay for better performance; fourth, hand the loan risk prevention and control authority to the credit technician team, realising a “fish biting tail” circular risk monitoring mechanism; fifth, hand the loan management authority to computers, having developed a technological system covering the entire process of farmers' basic information, approval workflow, post-loan management, risk early warning, and credit officer management.

⟦NL> “At present, 60% of farmers in Hainan can obtain loans easily, and the interest rate is below 15%; if they repay with integrity, they can also enjoy government interest subsidies, so farmers' loan interest rates are generally between 7%~8%.” Wu Weixiong believed that to put rural inclusive finance into practice, there must be a group of professionals who understand “agriculture, rural areas and farmers” and even more understand finance to do rural finance. Whether farmers repay depends crucially on whether they have earned money, so while lending to farmers, the Hainan Rural Credit Union must also teach farmers technology, help farmers operate, and promote farmers' income growth; only in this way can farmers' repayment be ensured. To this end, the Hainan Rural Credit Union specially formed a small-loan credit technician team composed of 500 university students.

Wu Xiaoling believed that for China's agriculture to achieve large-scale operation, the most effective way at present is to develop intensive production, support the building of farmers' professional cooperative organisations, let organised farmers connect with financial institutions, guarantee farmers' repayment by establishing mutual guarantee funds, and then supplement this with government agricultural policy insurance to prevent farmers from falling back into poverty after a single disaster.