Based On The Organizational Innovation Of Rural Financial Development Research

Finance holds the key in the modern market economy, and it is also an importantbooster to economic growth in rural areas. Against the backdrop of the marketeconomy reform, China has been making great efforts to achieve market-orientedrural financial market over the past30years. Obviously, the development of ruralfinance can not be returned to the old pattern of natural economy, during whichfarmers were self-sufficient. In the meantime, the government can not take on allthings, because it can not ensure farmers have access to sufficient funds to produceand operate and may bring heavy fiscal burden. Therefore, we must stand our groundto reform rural financial policy based on the market-oriented direction, and the marketshould be the basis of the financial resources allocation in rural areas.However, we find China’s rural financial market is far from well-developed.From the perspectives of demand side (farmers) and supply side (rural financialinstitution), a market-based trading mechanism has not yet formed, and the capitalsupply and demand still face serious imbalance. It is difficult for farmers to get loans,while rural financial institutions also face difficulties to extend loans. That being thecase, we need to figure out what are the key problems and how to solve the problems?Based on relevant research findings and the related theories of organizationaleconomics (especially transaction costs), we find the reason for China’s rural financialmarket which is not well-developed is the high transaction costs, while the root causeof the high transaction costs are that farmers are in a weak position and a low degreeof organization. Based on this, we suggest innovating farmers’ organizations andoptimizing the system of rural financial institutions to reduce transaction costs, inorder to solve the difficulties facing farmers to borrow, and to attract more capitals torural areas. This report is mainly composed of the following parts:Introduction presents the background and intent of this report, describesresearch contents, logical thinking and research methods, and defines some basicconcepts.Chapter Ⅰ sorts out the related theories and literatures. This part describesorganizational economic theory which mainly focuses on transaction costs theory,including transaction costs, organizational boundaries, and economic organization,laying the theoretical framework for the analysis of rural finance. We also review economic behavior theory of farmers, and rural finance theory and research status.Chapter Ⅱ reviews the historical evolution of China’s rural financial reform andthe current conditions and problems. The reform process is the process ofdevelopment. From the perspective of the policy level, this chapter illustrates the ruralfinancial reform path which focuses on rural financial institutions, and summarizesthree characteristics of the rural financial development. Through our data analysis, weconclude that the main problems facing the rural financial developed are imbalanceddemand and supply conditions and the large gap between supply and demand offunds.Chapter Ⅲ focuses on the bottleneck in the development of rural finance,namely the root causes of the high market transaction costs--the low degree oforganization of farmers. As financial needs of farmers are the logical starting point ofstudying rural finance, this chapter analyzes the characteristics of the farmers’financial needs, and mainly reviews system and cost risks of credit transactionsbetween farmers and financial institutions from the perspectives of informationcollection and processing, transaction costs, management&supervision, loan risks&opportunism and reverse selection mechanisms. On this basis, this chapter presentsthat the root causes of high transaction costs of rural finance is the low degree oforganization of farmers. Farmers are not positioned to bargain with rural financialinstitutions. Therefore, a well-developed transaction system has not formed. We alsoanalyze the reasons of the low degree of organization of farmers.Chapter Ⅳ analyzes the effective system for farmers to match with ruralfinancial institutions through innovations for farmers’ organizations. First, this chapterdescribes the innovative core of farmers’ organizations, pointing out that theorganization of farmers is not the simple combination of individual farmer, butcooperation from production&operation to credit to organizations. Creditcooperation can hardly sustain without cooperation in production and operation.Second, our comparative analysis on transaction cost and risk changes suggestsfarmers can effectively reduce transaction costs with financial institutions under theframework of organization. Third, this chapter also presents costs of farmers’organizations, which is the unavoidable constraint for organization of farmers.Chapter Ⅴ focuses on farmers’ organizations innovation and different financingmodels of the rural financial market. On the one hand, we review the evolution of organization forms of farmers, especially the development of rural economicorganizations since the founding of PRC; on the other hand, this chapter analyzeseight rural financial transaction patterns based on the organizational innovation, andpresents our comments based on the related cases.Chapter Ⅵ analyzes how to improve the rural financial organization systemfrom the main suppliers of rural finance. Through analysis of the current developmentof the rural financial organization system, and with a view to the positioning of thevarious financial institutions, we propose several suggestions to improve the ruralfinancial organization system and to optimize the financial services function. The keyis to refine and adjust the rural financial market division, fully leveraging theirrespective competitive advantages, and further reducing their operating costs.Chapter Ⅶ presents experiences of developing rural financial markets in othercountries. We introduce and analyze the developments of rural financial situation inEurope, America and some Asian countries, particularly experiences frommarket-oriented financial resources allocation, how to allow all types of farmers’cooperative organizations to take their full play, and development of a sound financialorganization system.Chapter Ⅷ proposes the corresponding suggestions on the roles of localtalents in rural areas, rural culture, internal management and financial system offarmers’ organizations, and government policy support based on the actualdevelopment of China’s rural economy.Through the above research and demonstration, this report attempts to makesome new explorations on the development of rural finance issues in the followingtwo aspects:1. To address the issues of “difficulties for famers to get loans” and “difficultiesfor financial institutions to extend loans”, this article uses transaction cost theory toanalyze the existing rural financial trading mechanisms and cost risk. This articleconclude that the high transaction costs is the bottleneck for the development of ruralfinance, while the root cause of the high transaction costs is the low degree oforganization of farmers.2. Based on organization economic theory, this report presents and demonstratesa core proposition: On the one hand, farmers can effectively reduce transaction costsand risks with financial institutions under the framework of organization. On the other hand, the rural financial institutions can optimize their functions to better meet needsof farmers based on their division of labor and competition.I know that I still have a long way to go in this field. The researches on ruralfinancial issues from the perspectives of transaction costs and farmers’ organizationsare still very limited. In addition, it has been a theoretical obstacle to conductquantitative analysis of transaction costs. This report is just a starting of rural financialtransaction costs, and I still need to further enhance my analysis on the internalbehavior of farmers’ organizations. Anyway it will encourage me to make great effortsto study further in these fields.