The difficulty farmers face in getting loans is more urgently in need of solution than the high cost of loans
Recently, the "Third Internet Finance Bund Summit," hosted by the Shanghai Finance Institute (SFI), was held in Shanghai. As an important topic, the "new inclusive model for rural finance" drew widespread attention from the agriculture, rural areas and farmers sector and the financial sector. Experts and corporate representatives at the meeting believed that rural areas are the least likely to receive financial support, and that difficulty in getting loans is more urgent than expensive loans. In rural areas, getting loans is difficult; for ordinary farming households it is even more difficult; for poor farming households and low-income farming households it is difficult beyond measure. This group is very large, and in developing inclusive finance in rural areas, special attention should be paid to this group.
Where are the difficulties--
Information asymmetry, high costs, high risks
"Why is getting loans difficult? Because the production and living characteristics of farming households are incompatible with the current systems, institutions and operating methods of formal financial institutions. This modern financial setup developed gradually along with urban industrial and commercial society, and loan products, including operating procedures, were all designed for the characteristics of industrial and commercial enterprises, so farmers are not acclimated to them." Duan Yingbi, president of the China Foundation for Poverty Alleviation, pointed out at the forum that when using the same set of methods to provide financial services to farming households, banks often encounter difficulties in three areas: first, information asymmetry. Farming households are different from industrial and commercial enterprises and lack standardized financial statements and systematic transaction records. It is very difficult for banks to know their true financial situation. Second, high costs. Farming households live in very scattered locations, and the amount of a single loan is very small, generally just 10,000 or 20,000 yuan, sometimes even just a few thousand yuan. Traveling over mountains and ridges to lend farmers a few thousand yuan or ten thousand yuan carries very high costs. It cannot compare with the cost of large loans of tens of millions or hundreds of millions, and at the same interest rate the bank will lose money. Even if it does not lose money, there is not much profit to be made. Third, high risks. Farming households have no collateral and cannot find guarantees. The agricultural production they engage in, including crop farming and livestock farming, involves not only market risk but also natural risk. Add to that the absence of guarantees and collateral, and banks feel the risk is too great and are unwilling to provide them with services.
Difficulty in getting loans is also related to farming households' weak awareness of protecting themselves. In the practice of carrying out rural microcredit, CreditEase found that credit records in the loan process created problems for them: because farming households mostly follow the five-household joint guarantee model, their awareness of protecting their own information is relatively weak. In one village, large households used their ID cards to obtain loans, and when the large households ran into problems, the credit of the whole village was ruined.
In order to solve the problem of farming households having no collateral, the state allows contracted land and residential land to be used as collateral, and this should be called a good policy. But Duan Yingbi believes that in actual operation two problems have not yet been well solved: first, how to assess the value? Because there is no unified market, how much is that piece of land or that house worth? It is hard to calculate. Second, it is difficult to liquidate. If the loan cannot be repaid, it is very difficult for the bank to take the residential land and turn that land into cash. A house on residential land can only be sold to farmers in the same village, not to city residents. Suburbs of large cities are somewhat better off; in some rural areas, everyone goes out to work, and the houses are empty to begin with. One household, one residence: if they go bankrupt and cannot repay the loan, and you seize their house, where will they live? These are all concrete problems, and banks appear very cautious when implementing the policy.
How to break the bottleneck--
Establish a new "three specials and one public" credit model
"The goal of inclusive finance is very clear, which is to serve the poorest people at the lowest end. This is a systemic concept, and it requires building an entire ecological environment from macro-level policies and laws, to meso-level infrastructure construction, to micro-level financial innovation, before the financial service problems of the lowest-end groups can truly be solved." Bai Chengyu, secretary-general of the China Microcredit Alliance, explained.
"To solve the difficulty low- and middle-income farming households have in getting loans, a relatively good approach is to establish so-called 'three specials and one public' institutions." Duan Yingbi explained that the so-called "three specials" are: first, a specialized institution that provides loans only to low- and middle-income and poor farming households, and not to large households. Second, a professional team, mainly loan officers recruited in rural areas. These loan officers are provided with the "five social insurances and one housing fund"; they are employees of the company and must be full-time. Third, special loan varieties and professional operating procedures. According to the production and living characteristics of low- and middle-income farming households in each place, loan products and operating procedures are tailor-made, rather than designed according to one set of financial institutions. The so-called "one public" means public welfare, not for profit. It operates as a company and in a market-oriented way, and is only required to cover costs, break even with small profits, and not required to make a lot of money.
In his research, Duan Yingbi found that some places adopted a "joint cooperation method of banks, government and insurance." That is, with the government taking the lead, the finance department establishes a risk fund, and an insurance company is asked to create a new type of insurance such as loan guarantee insurance, to encourage banks to lend to poor farming households. In actual implementation, it is not simply given under the names of poor farming households; in fact, leading enterprises are using this money. The biggest advantage is that results come quickly and the scale is large. In just about half a year, several billion yuan was disbursed in a single province, and every farming household registered and documented received a loan. This is the biggest advantage. But whether this method of government fiscal backing is sustainable remains to be seen.
"Now whenever solving the difficulty of getting loans is mentioned, it is Internet Plus, but not all internet models are suitable for rural areas. For example, in our microcredit, what farming households most need is to be told information on how to operate it. CreditEase has a mobile financial service platform specifically for the rural market, the Huinong platform, and in promoting it we found that the mobile-end model is more suitable for the rural market than the PC-end model, and the operation should be made very simple." Wang Wei, senior vice president of CreditEase Inclusive Finance, told reporters that farming households should be able to leave information easily, rather than face all kinds of choice operations that are very difficult for them. Moreover, they have more low-end mobile phones, which do not support especially complicated processes, so the simpler the operating process, the better.
How to make it more sustainable--
"Three forces in one" to expand the cost-benefit point
"To solve the difficulty of getting loans, one can also jump out of the box. Farming households seeking loans, especially some large households, need money simply to expand reproduction. For this kind of group, we try to use financial leasing. For example, in agricultural machinery leasing, there are 11 categories of leasing models across the entire agricultural machinery sector nationwide, and we have done 7, basically achieving full coverage from planting to harvesting. This business currently covers 22 provinces and more than 300 partners, and these more than 300 are agricultural machinery dealers." Wang Wei explained that in doing business in rural areas, if you do not innovate, you cannot keep going. You must think of every possible way to reduce costs and let more customers know our information; otherwise, if everything relies on people, the cost will be very high. She also called for action, noting that last year CreditEase's "Yidingniu" business pioneered domestic live-animal financial leasing, and the company is currently further exploring live-animal leasing business, and she hopes the government can give live-animal leasing business some new definitions of asset categories.
"The traditional financial service system has a cost-benefit boundary, and business beyond this boundary is not done because it is not worthwhile. Now, to develop inclusive finance, its essence is to push the cost-benefit boundary outward, so that all social strata and groups can be included in the financial service system. This is the essence of our development of inclusive finance." Ye Xingqing, director of the Rural Economy Research Department of the Development Research Center of the State Council, proposed at the forum.
How can the cost-benefit point be pushed outward? Ye Xingqing believes it must be jointly advanced by three forces: first, technological progress, which through advances in digital technology continuously lowers the marginal cost of financial services. Through model innovation, the boundary can also be continuously pushed outward. The high interest rates of microcredit covering high costs is also one method of covering the boundary. In addition to relying more on market methods to push the boundary outward, there are also two important factors. First, doing this work requires sentiment; in pursuing inclusive finance, especially rural microcredit, there must be a kind of spiritual strength, and this is a very important condition. Another is that policy should still provide a relatively relaxed environment, and even provide some policy support, which is also very necessary. Only by jointly pushing the critical point of cost and benefit through market forces, plus spiritual strength and policy support, can the work of rural inclusive finance be done well.