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More rural finance

(China Daily)
Updated: 2009-09-27 14:05

Banks are indispensable to any urbanite, but for farmers in Fenxi county, Shanxi province, that convenience has been an unreachable luxury for the past decade.

It is a sad story. Due to inaccessible financial services in the past decade, many farmers conducting small business transactions have turned to watchdogs to safeguard their cash.

In 1999, 12 local credit cooperatives were closed after accumulating a debt of 670 million yuan ($98.5 million) and being exposed for a series of frauds. Since then, more than 100,000 local farmers have had to live a life without a bank until one was set up last year.

This is a typical case of how inadequate financial services have curbed rural development in China. Although the nation has set up the policy-oriented Agricultural Development Bank, the commercial Agricultural Bank and rural cooperatives, the banking network is still far from sufficient in the vast rural areas. Many credit cooperatives are also poorly managed.

Official statistics show that 1,424 townships are short of local financial institutions at the end of last year. Farmers have tremendous difficulties in acquiring loans, even if the amounts are often very small.

Related readings:  Standard Chartered joins rural finance campaign  New policy bid to boost rural finance  Expand rural finance  Grass-roots bank in Sichuan fills rural lending vacuum

The reason is clear. Rural financing is still much less profitable compared with financing in urban areas. Rural financial institutions often face high risks because many farmers are not able to offer mortgages. They are not good at risk control and have more difficulties than their urban counterparts in fundraising.

But China, the country with a rural population of 737 million, can be more prosperous only after narrowing the gap between rural and urban areas.

Many economists argue that China's economy should achieve sustainable growth by propping up domestic consumption. To this end, the country must speed up rural-financing reform.

On the one hand, the Agricultural Development Bank should shoulder its responsibility in supporting rural infrastructure construction and poverty alleviation. On the other hand, the commercial rural bank should be required to allot a certain proportion of loans to agriculture.

Besides guaranteeing capital for rural financing services, other commercial banks should also keep a certain share of rural savings to offer rural loans.

Voluntary mutual cooperatives, as well as village banks, should be developed to serve farmers.

It was reported that China has already opened 118 new rural financing branches by the end of June.

This is a good start. However, we should bear in mind that in the process of rural financing reform it is essential to attach more and more importance on risk control.