Solving the rural finance problem cannot rely solely on the market

Agricultural modernization is the foundation for building a moderately prosperous society in all respects and realizing socialist modernization. In this process, financial support is particularly important. But in reality, developing rural finance is a worldwide challenge. On the one hand, due to the lack of collateral and information asymmetry, farming households often find it difficult to meet the collateral loan requirements of financial institutions; on the other hand, financial institutions are more willing to channel funds into industries and regions with high returns. For these two reasons, the view put forward by some people that the rural finance problem should be solved in the direction of marketization is debatable.

Historical development proves that pure market logic cannot effectively solve the rural finance problem. In the 1990s, during the commercialization reform of China's banks, major banks, driven by profit, withdrew their branches from the countryside and contracted toward cities and towns, worsening the difficulty farmers faced in getting loans. After 2006, in a new round of reform with rural credit cooperatives as the main body, a large number of rural credit cooperatives were restructured into rural commercial banks or rural cooperative banks under the orientation of marketization. Although this reform greatly increased the volume of rural loans and agriculture-related loans in a short period, this high growth was difficult to sustain. After 2009, the growth rate of rural loans dropped markedly, and as of the end of September 2015 the growth rate was only 11.4%, lower than the 15.4% growth rate of all loans of China's financial institutions in the same period. Market-oriented reform was meant to enable rural finance to better support agriculture, rural areas and farmers, but pure market logic has made rural financial institutions unable to effectively serve agriculture, rural areas and farmers, and has even turned them into a "water pump" that drains funds from rural areas, causing a continuous outflow of funds. In view of this, we should take marketization as the orientation and policy support as the backing, improve the incentive and constraint mechanisms, and effectively solve the rural finance problem.

Build the rural credit system from the bottom up. At present, building a nationwide credit system still takes time, and the problem of distorted resource allocation caused by information asymmetry in various places urgently needs to be solved. Given the current state of rural finance in China, building the credit system from the bottom up is more realistic, quicker and can save costs. The reasons are: first, local governments and financial institutions, under the incentive of a high-quality credit environment, are willing to lead the building of the regional credit environment; second, local institutions have more comprehensive information and can fully consider local advantages and characteristics in building the credit system, with more flexible rating methods and more objective rating results, and can even stimulate financial innovation; third, as the credit environment in various places improves, integrating and standardizing local credit databases and, on this basis, building a nationwide credit system can greatly save economic and time costs. All localities should be encouraged and advocated to advance the building of the credit environment, so that more and more credit villages replace the "blank villages" of financial institutions.

Improve supporting policies conducive to bringing finance to the countryside. Practice has proved that without the government's supporting measures, it is difficult to bring finance to the countryside. To improve the infrastructure of the rural financial market and the supporting policies conducive to bringing finance to the countryside, the government should play a role in legal system building and financial supervision, and assume the duty of providing public goods in important links such as building the credit environment. Efforts should be made to purify the financial ecological environment, strengthen cooperation with rural financial institutions, reduce the operating costs of financial institutions, and attract more financial institutions to devote themselves to the rural financial market; reasonably implement fiscal and tax preferential policies, promote the development of rural and agricultural insurance, and reduce the cost and instability of financial support for agriculture. At the same time, financial institutions should also strongly support advantageous enterprises, cooperate with government development planning, and, on the premise of ensuring independence, achieve a win-win outcome through government-bank cooperation.

Guide financial institutions to establish the concept of serving agriculture, rural areas and farmers. Before entering the rural financial market, financial institutions should comprehensively consider their own goals and the characteristics of the rural financial market, and avoid entering blindly; after entering, they should take a long-term view and closely link their own development with the development of the rural financial market. While subsidizing institutions that enter the rural financial market, the government should guide them to firmly uphold the concept of serving agriculture, rural areas and farmers, and where possible should also carry out a certain degree of screening, so as to avoid the negative impact on the rural financial market caused by some financial institutions withdrawing their branches from the countryside.