Credit cooperation promotes the standardized operation of members' banks

Editor's note: Cooperative credit cooperation is an explicit requirement of the Third Plenary Session of the 18th CPC Central Committee and the 2015 No. 1 Central Document, and it is also an urgent call and aspiration of the farming masses. In recent years, beneficial attempts at credit cooperation in some localities have achieved good results, playing a certain role in developing agricultural production and alleviating farmers' difficulty in obtaining loans. But on the whole, policy boundaries still need to be further clarified to promote the steady and healthy development of cooperative credit cooperation.

With the approval of the State Council and the reply of the China Banking Regulatory Commission, Shandong, as the country's only pilot province for new-type rural cooperative financial reform, has since January 2015 been piloting the advancement of new-type rural cooperative finance, using farmers' professional cooperatives as a platform to carry out credit mutual-aid business in a standardized manner and overcome the financing difficulties of farmers in production and operation. At a recent press conference on Shandong's financial reform and development, Li Yongjian, director of the Shandong Provincial Financial Office, introduced that as of the end of June this year, 160 cooperatives across the province had participated in the pilot, with more than 10,000 participating members, and cumulative mutual-aid business volume of 33.088 million yuan.

With unified policies and supervision by financial authorities, cooperatives feel that "the risk is smaller and we feel more secure"

On September 3, Kong Linghai, a farmer in Jisuo Village, Jisuo Town, Tengzhou City, was about to plant tomatoes in his greenhouse, but he was still short of money for agricultural film and fertilizer, so he submitted a loan application to the Jixiang Fruit and Vegetable Professional Cooperative: a loan of 10,000 yuan for half a year, to be used to buy agricultural supplies.

After review and confirmation by the cooperative, the application was reported to the custodian bank for the mutual-aid funds, and the custodian bank immediately transferred 10,000 yuan to Kong Linghai's account. "We grow greenhouse crops, and the one-time investment is large. There are often times when we lack money. Participating in mutual-aid funds is a good thing, simple and convenient," said Kong Linghai.

Jixiang Cooperative was recognized by the financial authorities in 2015 as a pilot unit of new-type rural cooperative finance. Since May 2008, the cooperative had been carrying out mutual-aid fund business internally.

Zhou Guangjian, chairman of the cooperative, summarized the differences before and after the pilot with "four major changes": before the pilot, the cooperative set up its own fund pool and managed deposit and loan business itself; after the pilot, the fund pool was abolished and finances were handed over to the custodian bank for management. Before the pilot, there was no upper limit on members' deposits into the fund pool, and no upper limit on the total amount of funds in the pool; after the pilot, upper limits were set on members' deposit funds and the total amount of mutual-aid funds. Before the pilot, attracting members' deposits relied on interest; after the pilot, attracting members' deposits relied on dividends, and the income generated by the cooperative's mutual-aid funds was distributed as dividends quarterly. Before the pilot, qualification recognition, business processes and management systems were all explored on one's own; after the pilot, the province had unified policies and implementation measures, with supervision by financial authorities, and it felt like "the risk is smaller and we feel more secure."

"Zhou Guangjian's summary objectively reflects the development process of the supply and marketing cooperative system guiding cooperatives to carry out mutual-aid funds," said Yu Qingfeng, deputy director of the council of the Shandong Provincial Supply and Marketing Cooperative. As early as 2007, the Shandong Provincial Supply and Marketing Cooperative issued a document arranging for grassroots supply and marketing cooperatives to explore credit mutual-aid business within the cooperatives they sponsored. In 2014, the supply and marketing cooperative specially established a cooperative finance department and carried out work such as cleaning up affiliations, setting up counters, and hanging "mutual-aid funds" signs, and the business entered a stage of standardized development.

As of the end of June this year, there were 191 farmers' cooperatives in the Shandong supply and marketing cooperative system carrying out credit mutual-aid business in a standardized manner, with total mutual-aid funds of 447 million yuan. Among them, 56 cooperatives had passed pilot qualification recognition by local financial regulatory bureaus and participated in the province-wide pilot, accounting for 35% of Shandong's total pilot cooperatives.

With closed internal operation of cooperatives, the mutual-aid funds operation of "small-amount, short-term" lending is more standardized

Zhao Lichen, deputy director of the Shandong Provincial Financial Office, introduced: "Adhering unswervingly to the basic principles of the membership system and the closed system, in order to avoid financial risks in the reform pilot, the total amount of cooperative mutual-aid funds in principle does not exceed 5 million yuan, and the borrowing amount of a single member does not exceed 5% of the total mutual-aid funds. Mutual-aid funds are mainly used to support the liquidity needs of cooperative production and operation, generally not exceeding 1 year."

The Shandong pilot plan designated the Shandong Rural Credit Union and the Shandong Branch of the Agricultural Bank of China as custodian banks for the funds, and explicitly required local financial regulatory authorities to conduct dynamic supervision of cooperatives.

"Members know each other well. The upper limit for borrowing funds is 30,000 yuan, for at most half a year. Carrying out such 'small-amount, short-term' lending within the cooperative basically has no risk," said Zhou Guangjian. "The cooperative has cumulatively issued more than 15 million yuan in loans, and not a single accident has occurred."

Now, according to the provincial pilot plan, the mutual-aid funds operation of Jixiang Cooperative is more standardized. The upper limit for members' deposits at the cooperative is set at 3 times the local farmers' per capita net income of last year, that is, 50,000 yuan, and the total amount of mutual-aid funds of Jixiang Cooperative is limited to 1.6 million yuan. The monthly interest for members borrowing from the cooperative is 8 li, roughly the same as the loan interest rate of the local rural credit union. After the cooperative lends funds and generates profit, after deducting costs, it distributes dividends to members quarterly.

In terms of business processes, Jixiang Cooperative explored the "448" model, that is, adhering to 4 principles: democratic decision-making, members' voluntariness, closed operation, independent accounting, small-amount and dispersed, self-bearing of risks, prudent advancement, and compliance with rules and standards; standardizing 4 aspects: member qualifications, member capital contributions, lending business, and rules and regulations; and refining the credit mutual-aid business into an 8-step process: application for credit granting, credit-granting evaluation, loan application, loan approval, fund collection, loan issuance, maturity recovery, and return of principal to the household.

On the basis of standardization, it is necessary to explore new credit mutual-aid models such as "warehouse-loan linkage" and "warehouse receipt pledge type"

Li Yongjian frankly stated that on the basis of pilot expansion, efforts should be made to initially establish by the end of 2017 a new-type rural cooperative financial framework suited to Shandong's agricultural and rural development, with standardized operation, strong supervision, and obvious results. At the same time, through measures such as improving support policies and regulatory systems and strengthening training and exchanges, grassroots units should be encouraged to explore new models and feasible paths for rural cooperative financial development.

Such new models already exist.

Hedong District of Linyi City is one of the birthplaces of the Shandong supply and marketing cooperative system's exploration and advancement of cooperative mutual-aid funds business. At the Desheng Garlic Planting Professional Cooperative in the district, chairman Lin Tingxuan told reporters: "The cooperative's leading industry is garlic. In addition to small-amount fund needs in the production link, members also have large-amount fund needs in the collection, storage, and purchase-sale links of garlic sprouts and garlic. Therefore, the cooperative has deepened cooperation with the custodian bank, the Rural Credit Union of Zhengwang Town. With its self-built cold storage as collateral, the cooperative obtained 10 million yuan in credit from the rural credit union. Together with the cooperative's 6.5 million yuan in mutual-aid funds, it provides fund services for members participating in collection, storage, and operation. Members can use garlic sprouts or garlic stored in the warehouse as collateral, and the cooperative provides fund services to them at a ratio of 70%."

This year, member Zhu Chongyue, relying on more than 800,000 yuan borrowed from the cooperative, invested a total of more than 1.2 million yuan and stored 400,000 jin of garlic sprouts and garlic. "After subtracting storage costs and losses, I can earn two or three hundred thousand yuan this year," Zhu Chongyue said with a smile.

Jiang Jinguang, director of the Cooperative Finance Department of the Provincial Supply and Marketing Cooperative, introduced that the basis of this business model is that the cooperative has warehousing facilities such as cold storage, members have the willingness to engage in collection, storage, and operation, and the cooperative can provide services such as accurate market information, minimizing risks to the greatest extent.

Industry insiders believe that more and more cooperatives have their own warehousing service facilities, so this "warehouse-loan linkage" and "warehouse receipt pledge" type of credit mutual-aid business has considerable room for growth. Rural credit unions should take the initiative to play the role of custodian banks, innovate credit financial products, and make every effort to provide fund support.

In addition, various types of credit mutual-aid business development models such as agricultural supply services, agricultural product processing and sales, supply and marketing services, comprehensive services, land trusteeship, rural tourism, and self-owned fund services are also being actively explored.