Where exactly does the crux of farmers' difficulty in getting loans lie?
The difficulty farmers face in obtaining loans has a long history; it is an old problem. To be fair, the fact that this problem remains unresolved today is not due to government inaction; on the contrary, the government has taken great pains. So is it that banks are prejudiced against farmers? Of course not. Setting aside policy banks, commercial banks, being in business for business, naturally do not sort loan recipients by closeness or distance. Since the government attaches importance to it and banks have no prejudice, where exactly does the crux of farmers' financing difficulty lie?
As for the explanation of this phenomenon, academic circles currently hold a range of views. The mainstream view is that there are too few rural financial institutions to meet farmers' financing needs. To put it more plainly, this view holds that as long as more financial institutions are set up in rural areas, farmers' difficulty in obtaining loans can be readily solved. As it happens, I have a research report at hand, which says that a certain city in the southwest, with the support of the central bank, already has 27 banks and 63 non-bank financial institutions, with outlets covering 173 townships, and thus, it is said, local farmers no longer have difficulty obtaining loans.
I did not go to the local area to conduct research, and I believe what the report says is true. However, I have an unanswered question: is the reason local farmers no longer have difficulty obtaining loans that there are many financial institutions, or is there another reason? The reason I ask this is that I am thinking of the difficulty small and medium-sized enterprises have in obtaining loans. As everyone knows, at present most of China's banking institutions are concentrated in cities, and there are quite a few of them, so why do urban small and medium-sized enterprises also have difficulty obtaining loans? It can be seen that whether loans are difficult to obtain does not mainly depend on the number of banking institutions; if credit resources are scarce, no matter how many banks there are, it probably will not help.
A similar example is train tickets during the Spring Festival travel rush. For example, if the market needs 1 million tickets but the railway can only supply 800,000, what should be done about the gap of 200,000? The suggestion we hear most often is to increase ticket outlets (or require real-name ticket purchases), and the railway company indeed did so. What was the effect? Needless to say, as long as ticket supply does not increase, merely increasing ticket outlets (or requiring real-name ticket purchases) is undoubtedly a temporary fix, not a fundamental one, and in the end 200,000 people will still be unable to buy tickets. In fact, the same is true of farmers' financing difficulty: if credit supply is not increased, even if banks are set up right at farmers' doorsteps, farmers still will not be able to get loans, believe it or not?
Of course, this is not to say that if credit supply is increased, farmers will definitely be able to get loans; that is only one aspect. In fact, behind farmers' difficulty in obtaining loans there are even more complex factors. A few years ago there was excess liquidity in China, which shows that banks did not lack money at that time, but were farmers not still unable to find a way to borrow then? In recent years, although credit funds have tightened, banks still issue loans every day. What is puzzling is why some people can borrow money from banks while farmers find it as hard as climbing to heaven? Can it really be that banks discriminate against farmers? I do not see it that way.
Farmers' difficulty in obtaining loans can be analyzed from two aspects. First, from the perspective of banks. As said before, banks are enterprises, but not ordinary enterprises. The difference is that ordinary enterprises deal in material goods, and when selling goods, ownership and use rights are transferred together; whereas banks deal in money, and they transfer only use rights, not ownership. Why not transfer ownership? Because loan funds come from depositors (deposits), and the bank does not have ownership. In other words, credit funds are borrowed by the bank from depositors and must be repaid with principal and interest later, which is also why banks must put "security" first.
Next, from the perspective of financing. There are two types of financing: direct financing and indirect financing. The former issues stocks or bonds, with risk borne by investors; the latter goes through bank loans, with risk borne by banks. The problem lies here: according to the Basel Accord, the bank capital adequacy ratio is only 8%, so how could it bear excessive risk? Precisely because of this, indirect financing has a specific institutional arrangement. One important point is that the borrower must have asset collateral. Come to think of it, indirect financing originally means that the borrower already has assets, but the form of the assets does not match the need (for example, having real estate but needing cash), so bank intermediation is needed.
It can thus be seen that asset collateral is the premise of indirect financing. But do not misunderstand: not all borrowing requires collateral. Banks absorbing depositors' deposits is also borrowing, but it requires no collateral. Why? Because when a bank borrows from depositors, it is equivalent to issuing debt, which is direct financing. Strictly speaking, only borrowing through an intermediary institution is indirect financing. For example, farmers borrowing from banks is typical. Since it is indirect financing, asset collateral is required. It is precisely in this sense that for many years I have believed that the crux of farmers' difficulty in obtaining loans is not with the banks, but with the fact that farmers have no assets to use as collateral.
Yes, banks are not charitable institutions, and it is impossible for them not to avoid risk. This cannot change now, nor will it be possible to change in the future. Extended to the policy level, the implication is that to solve the problem of farmers' difficulty in obtaining loans, one should not expect banks to change the rules, but should seek ways to enable farmers to have assets for collateral. Is that possible? Human effort can accomplish anything, so of course it is possible. In fact, farmers today are not utterly impoverished; they do have assets: at least homestead land is an asset, and housing is also an asset. The question is, since farmers have assets, why do they not use them as collateral?
A few days ago I met a county party secretary. According to him, among the homestead land use rights, housing ownership rights, land contracting rights, and forest land contracting rights that farmers currently possess, current law allows only "forest rights" to be used as collateral, and the Property Law and the Guarantee Law clearly stipulate that homestead land may not be used as collateral. Why the legislators originally intended such a provision is unknown. Recently, when I checked the literature, I saw an explanation by an authoritative official, the gist of which is: land contracting rights, homestead land, housing, and so on cannot be used as collateral, while forest land contracting rights can be, because the former are necessities of life for farmers, while the latter are not.
This explanation sounds reasonable, but on deeper thought it is not. My question is, why can necessities not be used as collateral? As a risk constraint, collateral should have a stronger risk-constraining effect the more important it is. Besides, urban housing is also a necessity; urban residents can use it as collateral, so why can farmers not? Perhaps someone will say that this is to take preventive measures and avoid farmers becoming displaced in the future. Although this worry is understandable, I see it as groundless. You should know that the law allowing collateral is one thing, and whether farmers will use it as collateral is another. Farmers are not stupid; on what basis do you conclude that farmers will recklessly pledge their assets as collateral without considering the consequences?
By the so-called equality of all before the law, I understand that everyone must obey the law, and no matter who it is, even the most powerful must be punished if they break the law; another meaning is that the law must protect citizens' equal rights. Specifically with regard to bank loans, whether farmers' assets can be used as collateral is not for others to decide in their place; it is better to listen more to farmers' opinions and leave the choice to farmers.