Farmers can now get loans more easily, and banks feel safer about lending
“They would rather forgo a 100,000 yuan fiscal subsidy and still hope to obtain a 1 million yuan loan.” This one remark lays bare the thirst of new-type agricultural business entities for finance. Modern agriculture cannot do without finance, yet “difficult loans” and “expensive loans” have long plagued business entities, becoming “growing pains.”
Premier Li Keqiang proposed making finance a pool of living water to better irrigate the trees of the real economy, such as small and micro businesses and “agriculture, rural areas and farmers.” At present, credit supply in China's rural areas is generally ample. In particular, over the past two years, targeted cuts in the reserve requirement ratio for agriculture-related financial institutions have released liquidity on a scale of trillions of yuan, so it can be said that the financial “pool” is not short of water. However, financial institutions that are “not short of money” face the dilemma of “difficulty in lending.” Because of the lack of collateral and guarantees, some banks are “unwilling to lend” and “afraid to lend” for agriculture-related loans.
How can the living water in the “pool” be drawn out? How can the crux of farmers' “difficult loans” and banks' “difficulty in lending” be resolved? In July this year, the Ministry of Finance, the Ministry of Agriculture and the China Banking Regulatory Commission issued the Guiding Opinions on Financial Support for Establishing an Agricultural Credit Guarantee System. The Ministry of Agriculture seized the opportunity and acted in line with the trend, actively promoting the establishment of a national agricultural credit guarantee system, officially breaking ground on using finance to leverage financial support for agriculture.
Why build it——
Break the “bottleneck” in modern agricultural development and resolve the “growing pains” of business entities
The central government has requirements and policies, the industry has urgent needs and room for development, and financial institutions have the will and the momentum. Solving rural financial problems faces a rare opportunity. There is an urgent need for the government to design a “policy package” with richer content, clearer levels and more efficient measures, combining fiscal, financial and other tools.
Developing modern agriculture under the new normal has put forward new and higher requirements for financial services.
Minister of Agriculture Han Changfu pointed out that modern agriculture not only needs fiscal subsidies for “blood transfusion,” but also needs financial capital to strengthen its “blood-making” function. With finance as the bond, advanced factors such as labor, land, technology and capital should be intensively allocated and optimally combined to advance appropriately scaled agricultural operations and industrial clustering, stimulate the internal vitality of rural farmers, and enhance the momentum and competitiveness of agricultural development.
Compared with the central government's requirements, the needs of new-type agricultural business entities are even more urgent. “The annual funding gap is more than one million yuan; it is really worrying” and “the vegetables we produce are supplied directly to Hong Kong, China, but because we have no collateral, we simply cannot get a loan.” During interviews, reporters heard such anxious words from time to time.
According to statistics, by the end of 2014, China had 3.18 million specialized large households with an operating area of more than 50 mu, more than 870,000 family farms and 1.29 million farmers' cooperatives; more than 120,000 leading enterprises of various types; and more than 1.15 million agricultural social service organizations of various types. Compared with ordinary small-scale farming households, traditional inclusive and simplistic direct subsidies can no longer meet the needs of new-type business entities as they develop and grow. For various reasons, their financial needs still cannot be effectively met. This has become the biggest “shortcoming” in agricultural support and protection policy and a prominent contradiction in the rural financial sector.
In order to resolve the “growing pains” of new-type agricultural business entities, there is an urgent need for the government to design a “policy package” with richer content, clearer levels and more efficient measures, combining fiscal, financial and other tools.
Unlike entities in other industries, agricultural business entities have few credit records and generally lack effective collateral and guarantee credentials, making it very difficult for banks to establish credit relationships with them; even when banks have money, they dare not lend. Faced with such a credit dilemma, third-party institutions must be introduced to provide loan credit-enhancement services, resolve information asymmetry, and ensure smooth credit extension for both sides.
Vice Minister of Agriculture Zhang Taolin believes that by using fiscal capital injections to establish specialized agricultural credit guarantee institutions and implementing “bank-guarantee” and “government-bank-guarantee” cooperation, a stable “iron triangle” system in which banks, guarantee institutions and agricultural business entities support one another can be built. This realizes integrated fiscal and financial support for agriculture. By transforming the mode of capital input, it leverages financial capital to support modern agricultural development and gives play to the guiding and leveraging role of fiscal funds, “using a small amount to move a heavy load.”
“Pooling the fiscal support funds for ‘agriculture, rural areas and farmers’ to build an agricultural credit guarantee system means integrating ‘dead money’ and ‘loose change’ and turning them into ‘live money’ and ‘lump sums.’” said Wang Zhaoxing, Vice Chairman of the China Banking Regulatory Commission.
The central government has requirements and policies, the industry has urgent needs and room for development, and financial institutions have the will and the momentum. It can be said that now is the best time to build agricultural credit guarantees, and all parties have reached a consensus on building them. Ma Jiujie, a professor at the China Rural Economy and Finance Research Institute of Renmin University of China, believes that if a nationwide top-down policy-oriented financing guarantee system not for profit is established, building a bridge between commercial finance and agricultural development, it can effectively solve the problems of farmers' “difficult loans” and banks' “difficulty in lending,” truly achieving a higher level of the agricultural industry, sustainable financial development, efficient fiscal subsidies and ultimate tangible benefits for farmers. This is also a policy path often used internationally.
How to build it——
Government capital injections to establish provincial-level agricultural credit guarantee institutions
Agricultural credit guarantees must focus on modern agricultural development, especially grain production and new-type business entities; actively explore effective operating models for agricultural credit guarantees suited to local realities, and establish a national agricultural credit guarantee alliance in due course
“Private financing guarantee institutions have relatively weak risk control capabilities and will not focus on the agricultural credit sector, where risks are relatively high.” Zhang Chenghui, director of the Finance Research Institute of the Development Research Center of the State Council, pointed out that agricultural credit guarantees involve high risk and low returns, and it is very difficult to give full play to their due role by relying entirely on market forces. The government must do something in this regard.
Using fiscal capital injections to establish specialized agricultural credit guarantee institutions has become the common expectation. This year's reform of the three agricultural subsidy policies clearly proposed adjusting 20% of the comprehensive agricultural input subsidy funds and part of the incremental funds to focus on establishing an agricultural credit guarantee system.
Tao Huaiying, director of the Department of Finance of the Ministry of Agriculture, pointed out that in the process of building an agricultural credit guarantee system, special attention must be paid to the principles of policy orientation, independence and focus. That is to say, agricultural credit guarantee institutions should mainly be funded and led by the government. At the same time, in order to avoid mixed operations leading to the “marginalization” of agriculture-related guarantees, the agricultural credit guarantee institutions and their business operations, including legal person, business, finance, assessment and management, should all be independent.
It must be emphasized that agricultural credit guarantees must focus on modern agricultural development, especially grain production and new-type business entities. In this regard, Vice Minister of Finance Hu Jinglin stressed: “The funds for fiscal support for building the agricultural credit guarantee system come from agricultural subsidies. Credit guarantee services must focus on agricultural development. In the initial stage, they must adhere mainly to planting and breeding. In the near term, support for appropriately scaled grain operations should be highlighted in particular.”
“Agricultural departments must perform their duties and act proactively in the construction and operation of the guarantee system, carefully guarding the organizational structure, business direction and project screening, and ensure that agricultural credit guarantees bear the surname agriculture and serve agriculture.” Zhang Taolin emphasized many times. Relevant documents also clearly require that the balance of eligible agricultural credit guarantees of policy-oriented agricultural credit guarantee institutions must not be lower than 70% of their total guarantee scale.
The financial sector plays the most critical role in advancing financial support for agriculture. Banks must also have strategic vision in “bank-guarantee” cooperation and assume corresponding responsibilities. They should provide more preferential terms to cooperating credit guarantee institutions, such as risk sharing, no or lower margin deposits, higher leverage multiples and control of upward floating loan interest rates. “To improve the bank-guarantee cooperation mechanism and risk dispersion mechanism, it is necessary to improve banks' performance assessment and risk accountability mechanisms and raise risk tolerance for ‘agriculture, rural areas and farmers’ financing guarantee loans.” Wang Zhaoxing said.
“The urgent task is to establish provincial-level agricultural credit guarantee institutions as soon as possible.” A relevant official of the Ministry of Agriculture said that efforts should be made to establish and improve provincial-level agricultural credit guarantee institutions within 2 years, actively explore effective operating models for agricultural credit guarantees suited to local realities, and establish a national agricultural credit guarantee alliance in due course.
Establishing agricultural credit guarantee institutions is also a major innovation and challenge for agricultural departments. “Unlike past fiscal projects, where funds could be invested once and that was that, once a credit guarantee institution is established, the funds will keep rolling and operating there forever, so long-term planning must be done well.” Agricultural department colleagues involved in establishing agricultural credit guarantee institutions deeply feel the enormous responsibility and pressure. To this end, the Ministry of Agriculture organized many seminars and training classes, learning while summarizing, to guide provincial agricultural departments in carrying out their work.
What is the progress——
Provinces are accelerating establishment, all rushing to make the “first guarantee,” and sustainable operation is key
Agricultural credit guarantees urgently need modern managerial talent who understand both agriculture and finance, and operating models must also be carefully designed and assessment systems scientifically formulated
The Ministry of Agriculture is pursuing the agricultural credit guarantee system to the end, implementing regular scheduling and supervision systems. It is understood that all provinces are already taking action.
Chongqing Agricultural Guarantee Co., Ltd. was established in 2006. Since its establishment, it has always adhered to providing financing guarantees and business cultivation services for new-type business entities such as family farms, large planting and breeding households, farmers' cooperatives, agricultural enterprises and agricultural social service organizations. As of November 2015, it had cumulatively provided 7.7 billion yuan in guaranteed loans for more than 2,000 agriculture, forestry, animal husbandry, sideline and fishery projects. Recently, the municipal government plans to increase capital to more than 1 billion yuan by 2017 to further improve and perfect the policy-oriented agricultural credit guarantee system covering 33 agricultural districts and counties.
A relevant official of the Jilin Provincial Agricultural Commission introduced that the plan for Jilin Province's newly established agricultural guarantee company has been approved by the provincial government, with registered capital of 4 billion yuan. It is specifically being jointly prepared by the Department of Finance and the Agricultural Commission, with the chairman and general manager recommended and appointed by the two departments respectively. Management adopts a headquarters-branch structure, with branches as business centers, and the headquarters focuses its assessment of branches on their agricultural credit guarantee business scale, number of projects, service quality and performance for agriculture, and risk control. This not only allows sharing of financial, human and information resources, but also allows decisions to avoid interference from local administrative authorities.
Compared with other provinces and municipalities, Hunan Province's finance department has invested 10 million yuan in each of 63 counties and cities across the province in the form of equity investment to establish offices of the provincial agricultural credit guarantee company, and has placed the focus of guarantee business at the county level. The next plan is to establish branches of the provincial agricultural credit guarantee company in the 27 major grain-producing counties across the province that do not yet have agricultural guarantee institutions, and to provide that cities and prefectures with 3 or more branches shall set up branch companies, implementing layered vertical management.
Although the specific methods of establishing agricultural guarantee systems differ across regions, the focus is first on establishing independent provincial-level agricultural credit guarantee institutions, and then extending business downward through offices, branch companies and so on. Moreover, this pace is clearly accelerating. According to statistics, as of December 15, the provincial agricultural guarantee companies in Beijing and Tianjin have begun operations and have already formed relatively complete agricultural credit guarantee systems; 4 provinces and municipalities including Shandong and Gansu will form province-wide agricultural guarantee systems by expanding registered capital scale and coverage; 7 provinces and regions including Jiangsu and Sichuan are preparing to establish them; 9 provinces and regions including Qinghai and Guizhou will immediately implement establishment plans after approval by the provincial government; and the remaining provinces and regions have also accelerated the pace of establishment. It is expected that most provinces will be able to formally inaugurate them by the end of this year or the beginning of next year.
“When will business be implemented?” This is the issue everyone cares about more. The guarantee institutions being established also all have timetables and are all rushing to make the “first guarantee.” “Once business begins, three issues must be considered early.” Ma Jiujie suggested: First, the guarantee leverage multiple should be reasonably expanded; fiscal funds should neither be left idle nor should non-agricultural business be pursued or big enterprises targeted just to boost volume, and ways must be found to strengthen stickiness with new-type business entities. Second, assessment should not look at profitability, but should focus on business scale, number of projects, service for agriculture and risk control. Third, fiscal compensation policies must keep up, mainly by establishing reasonable guarantee fee subsidies and compensation-for-payment systems.
“Setting up” is only the first step; to “operate well,” talent is key. “Engaging in agricultural credit guarantees requires understanding finance, and even more so being familiar with agriculture.” Jiao Taiwen of the Hubei Provincial Department of Agriculture said, “In the past we mainly studied agricultural production technology and were good at using direct fiscal subsidies or investment. In leveraging finance and social capital, we lack experience and especially lack specialized talent. To adapt to the new situation, agricultural departments must not only establish and strengthen awareness of modern agricultural finance, but also hurry to make up for lessons in rural finance, cultivate and introduce financial talent, strengthen rural financial forces, and establish regular, sound communication and cooperation mechanisms with financial institutions.”
In finance, risk prevention is crucial. Zhang Guoxiang, chairman of Hanhua Financial Holding Co., Ltd., suggested: “Guarantee institutions should refine risk management, adapt to the development trends of new financial formats such as internet finance, and provide diversified products. Moreover, the government should also accelerate the establishment of reinsurance institutions serving their jurisdictions to provide local financing guarantee institutions with an industry ‘stabilizer.’” It is understood that establishing a national agricultural credit guarantee alliance has already been put on the agenda.
It cannot be denied that there is still a long way to go in establishing and improving the agricultural credit guarantee system. It emerged to break the “bottleneck” in modern agricultural development, and it will surely grow stronger in serving “agriculture, rural areas and farmers.”