What exactly makes it so hard to cash in rural land management rights?
Risk compensation fund for rural land management rights mortgage loans
Editor's note: New types of agricultural business entities generally face difficulties in funding development, and difficult assessment, difficult guarantees and difficult mortgages have become the "roadblocks" for large agricultural operators seeking loans from financial institutions. In March this year, the People's Bank of China introduced a pilot measure for the mortgage of two rights, and various provinces began trying it out one after another.
However, in the process of advancing it, many difficult problems still lie ahead: Where is the path the government is exploring? How can the difficulties in advancing it be solved? How can mortgage loan risks be prevented and controlled? Let us see how Hanshou County, Hunan, does it.
On August 8, in the Dongting Lake area, at the 700-mu rice planting base in Jinpanling Village, Yanwanghu Town, Hanshou County, Changde City, Hunan Province, large grain grower Zhang Changyuan looked at the seedlings planted more than half a month earlier growing well, and his anxious heart finally settled. If he had not borrowed a 1 million yuan loan from the local rural commercial bank, he would not have been able to buy back the combine harvester and rotary tiller, nor the fertilizer, which would not only have affected the early rice harvest, but also delayed the late rice growing period by half a month, making it very difficult to avoid the natural enemy of late rice growth, the cold dew wind.
In the Wuling Mountain area, Qu Meisheng of Luoheping Village, Eryan Township, Yuanling County, also received a 1 million yuan loan. With this funding, his leisure farm will open smoothly in September this year.
The 1 million yuan loans that Zhang Changyuan and Qu Meisheng each received, although from different banks, both benefited from the same people-benefiting loan program - the rural land management rights mortgage loan.
From Hanshou's grassroots first attempt and groping forward as early as 2011, to 2014 when Hanshou, Yuanling and 8 other counties (cities) became Hunan's first batch of pilot areas for mortgaging rural contracted land management rights, to the end of 2015 when it became a national pilot county, and to now, the formal pilot has been running for more than two years. How is the work of rural land management rights mortgage loans in Hunan progressing? What risks exist? With these questions in mind, the reporter went to Hanshou and other places for on-site interviews and investigations.
1. How is the work innovated?
-- Confirmation and certification first, value assessment pioneered, mortgage methods scientific
Hunan is a typical major agricultural province, and new types of agricultural business entities generally face difficulties in funding development. Difficult assessment, difficult guarantees and difficult mortgages have become the "roadblocks" for large agricultural operators seeking loans from financial institutions.
Should they follow the old ways or boldly explore? Zhang Yexiang, director of the Changde Municipal Agricultural Economics Bureau and a senior agricultural economist, has been seeking answers to solve the problem in practice: "For rural land management rights mortgage loans, 3 years ago there were both policy 'minefields' and legal prohibited zones, but what the law does not prohibit can be done, so we can pilot first. Contract rights cannot be mortgaged, but management rights can be separated out. Why can't management rights be used as collateral for loans and open up a new path of reform?" With the support of the Changde Municipal Agricultural Economics Bureau, Hanshou County decided to be "the first to eat the crab."
To solve the financing difficulties of agricultural business entities, in 2011 Hanshou County launched a management rights mortgage loan attempt through Yongfeng Huasheng Microfinance Company, providing mortgage loans for breeding contracted management rights with a lease term of more than 10 years, with a cumulative total of 70 loans. However, due to dual resistance in policy and law, the overall results were not obvious. The issuance of the "Central Document No. 1" in 2014 cleared away the policy obstacles.
If mortgage loans are to be promoted, confirmation and certification must come first. Hanshou County accelerated the work of confirming and certifying rural land rights, ensuring that confirmation and certification would be fully completed by September this year.
If management rights are to be mortgaged, how to assess land value has become the key point. Hanshou County pioneered the "three-party recognition" value assessment method nationwide: for small loans, the county land circulation service center, the handling financial institution and the management rights holder are clearly defined as the assessment subjects, and the three parties jointly consult and jointly assess; for large loans above 500,000, an expert assessment committee makes the determination.
Large loans essentially require a relatively large area of land management rights to be mortgaged, but formally what is mortgaged is the farmer's contracted management rights certificate. However, Hanshou farmers, with only 1.35 mu of land per capita, obviously cannot meet the mortgage conditions by relying only on contracted area as collateral. Therefore, Hanshou County adopted two combined methods to solve the mortgage difficulty: one combination is a small amount of the farmer's own contracted land + the large-scale land that has been transferred; the other combination is a small amount of the farmer's own contracted land + contracted management rights obtained through public bidding (such as those obtained from improving low-lying lake fields).
In this way, "those with contracted management rights certificates submit the certificate as collateral; those without certificates submit the circulation contract as collateral." Li Juan, deputy director of the Hanshou County Agricultural Economics Bureau, introduced that the mortgagor signs a mortgage loan contract with the financial institution based on the value recognition document, and the county economic management bureau takes back the original copy of the "Land Management Rights Certificate" or "Circulation Contract" for custody and issues a "Other Rights Certificate." The mortgagor uses the "Other Rights Certificate" to apply to the financial institution for loan disbursement, and banks generally issue loans at 40%-60% of the assessed value.
2. Where is the difficulty in advancing it?
-- Difficult to assess accurately, disposal full of variables, financial risks relatively high
On March 20, 2014, Hanshou County issued Hunan Province's first land management rights mortgage loan, amounting to 500,000 yuan. Up to now, this work in Hunan Province has been gradually advancing, with pilot counties driving non-pilot counties to carry out land management rights mortgage loans. The reporter learned from the Changsha Central Sub-branch of the People's Bank of China that as of the end of June this year, the balance of mortgage loans for rural contracted land management rights in Hunan Province was 270 million yuan.
"From the total loan balance, the loan balance of the 8 pilot counties accounted for 49.8%, and as of June this year, Hanshou County's loan balance reached 54.92 million yuan, accounting for nearly 20%." A rural economic expert in Hunan analyzed that judging only from the above figures, the current land management rights mortgage loan presents a pattern of "one county contributing dominantly while overall progress is relatively slow."
Why is progress relatively slow? Industry insiders analyzed that, judging from the current pilot, there are mainly three difficulties: difficult to assess accurately, disposal full of variables, and relatively high financial risks.
The assessed value affects the loan amount, so whether the assessment of management rights value is accurate will directly affect the amount of loans issued. Hanshou calculates land value as "annual rent x operating term + value of above-ground crops and breeding stock," and this assessment calculation method is difficult to make accurate even for the main operating projects, the "two waters" crops - rice planting and water surface aquaculture. Tang Fangliang, deputy president of Hanshou Rural Commercial Bank, believes that there are many types of water surface aquaculture, but the output of most water surface aquaculture cannot be accurately calculated based on actual conditions, and can only be calculated according to conventional output, with the final assessed value then discounted by 8.5%; rice paddy rent is easily affected by both the market and weather. If a natural disaster occurs, the previously assessed value of rice output will be much higher than the actual value.
This year Hanshou Rural Commercial Bank is encountering exactly this kind of trouble: at the beginning of this year, the bank assessed the rice output of some large rice growers based on 800-1,000 jin per mu, but because the early rice encountered a severe flood in early July, it generally decreased by 400 jin per mu. Disasters like this bring trouble to disposal. Once there is total crop failure or reduced output, risks are inevitably brought about. If someone cannot repay the loan in time, then the assessment and calculation items for disposal will lack output and have only rent left.
In Tang Fangliang's view, the potential disposal risks are far more than these. On the one hand, if a nationwide trading platform is not used and the land is only recirculated within the county or surrounding areas, the space for disposal is relatively narrow, resulting in few customers, low prices, or even inability to dispose of it, so the project awaiting disposal will become a pile of waste. On the other hand, once disputes arise due to poor management or even incidents of bosses absconding, more trouble will be caused. For example, if the contracted household has not received the rent, it may take the land back from the operator, making it impossible to transfer the land management rights again; and if the operator, especially an out-of-town operator, "absconds," the operating project is easily seized by creditors, making disposal extremely difficult.
"For financial institutions, controllable risk is our lifeline. Because the operating time is short, although there have been no non-performing loans in Hanshou so far, the risk is potential, and we cannot fail to predict it in advance. Knowing that the hidden risks are relatively large, we do not dare to rush." said Zeng Yunxiang, deputy president of the Hanshou Sub-branch of the People's Bank of China.
3. How are risks prevented?
-- Two types of guarantees share the burden, three lines of defense for disposal, four-party professional assessment
Only innovation can overcome difficulties in reform.
The first hurdle of Hanshou County's innovation is improving the assessment method. Hanshou County introduced Tuliu.com as a third-party institution to assess land value. Through big data analysis, Tuliu.com makes a precise assessment of management rights value from 6 major aspects: sunlight and water sources, soil conditions, terrain conditions, policy planning, development support facilities, and regional economy. After Tuliu.com issues an assessment report, farmers, banks, the land circulation center and Tuliu.com determine the price as four parties, finally determining the land value.
From the previous "three-party recognition" to today's "four-party assessment," it not only helps large agricultural operators avoid business risks and choose agricultural projects suitable for operation more scientifically, but also allows financial institutions to avoid financial risks caused by inaccurate assessment.
What should be done if a large agricultural operator cannot repay the loan? "The government cannot take over everything or act as a nanny. The government mainly builds platforms and guides market operations," said Yu Xiqiong, member of the Standing Committee of the Hanshou County Party Committee and deputy county magistrate. Therefore, in 2014 Hanshou introduced policy-based guarantee institutions - two guarantee companies - as financial counter-guarantees; later it also introduced commercial guarantee institutions to participate in guarantees, and on March 18, 2016, issued the country's first land management rights mortgage loan guaranteed by an internet company.
"Policy-based guarantee institutions are the first line of defense, commercial guarantee institutions are the second line of defense, and we also have a third line of defense to regulate risk." The third line of defense Tang Fangliang referred to is the government's compensation mechanism using a risk compensation fund. During the specified pilot period, Hanshou County's finance department allocated funds to establish a 5 million yuan risk compensation fund, replenished annually according to the actual amount of loan risk compensation, and the risk compensation ratio for bank loan losses was raised from the original 10% to 20%. Yang Chang, secretary of the Hanshou County Party Committee, stated: If the total amount of land management rights mortgage loans reaches 150 million, the risk compensation ratio can be raised to 30%.
"We must not only improve our ability to share risks, but also enhance the efficiency and effectiveness of mortgage loans." In Zhang Yexiang's view, as far as advancing the entire mortgage loan work is concerned, it is necessary not only to build a "safety wall" for jointly bearing risks with three lines of defense, but also to start from three aspects: "confirming and certifying rights according to quality and quantity, establishing and improving an efficient and useful information management system, and exploring market-oriented mechanisms and forms for commercial banks to realize mortgage rights," so as to form the "loan momentum" of mortgage loan work. With the drive of "loan momentum" and the protection of the "safety wall," financial institutions can truly have fewer risks, farmers can have more returns, and agriculture can gain more vitality.