Study On Balancing Dual Goals Of Rural Formal Financial Institutions

In2005, the United Nations proposed the concept of Inclusive Finance, hoping toprovide full financial services for the people who do not fully enjoy it. In order to promotethe Millennium Development Goals, the United Nations named the year of2005as theInternational Year of Microcredit. The2006Nobel Peace Prize was awarded to theBangladeshi economist, Muhammad Yunus, and his rural banks. With the development of theMicrofinance theory and the Inclusive Finance theory, people started to find that carrying outmicrofinance business would help them to achieve the goal of farmers and the goal of smalland micro enterprises on the basis of finance sustainability.China has built the rural formal financial system, in which the Agricultural Bank ofChina, the Agricultural Development Bank of China, the rural credit cooperatives, the ruralcommercial banks and the rural cooperative banks play major roles, while the new ruralfinancial institutions play complementary roles. But, with the development ofcommercialization, their profit-driven business targets are more and more obvious, andgetting away from the rural areas. Therefore, it is necessary to study how to achieve andbalance the dual goals of the rural formal financial institutions, to increase farmers’ income,and to narrow the development gap between urban and rural area.Dual goals of rural formal financial institutions are the goal of financial sustainabilityand the goal of “Farming-farmer-countryside” credit services. Balancing the dual goals of therural formal financial institutions means that, the rural formal financial institutions shouldbetter meet the needs of the “Farming-farmer-countryside” credit services on the bases offinancial sustainability.By analyzing the situation of financial sustainability and “Farming-farmer-countryside”credit services, this thesis objectively evaluates the situation of achieving the dual goals, onthe two points of both supply and demand.Analyzing from the perspective of institutions, the situation of financial sustainability ofthe rural cooperative financial institutions has greatly improved, but the situation of the“Farming-farmer-countryside” credit service has no significant improvement. After theAgricultural Bank of China listed, its financial sustainability has improved greatly, but on thecountrary, the “Farming-farmer-countryside” credit service has declined. The financial sustainability of the Agricultural Development Bank of China has improved, mainly due tothe improvement of the internal management level and the development of agricultural creditbusiness and the commercial agricultural credit business has supplanted the agriculturalpolicy credit business. The financial sustainability of the new rural financial institutions hasimproved constantly. Theie credit services for farmers and for small and micro enterpriseshave run well. But the development speed of the new rural financial institutions is slow, andthe distribution of the new rural financial institutions is irrational.Analyzing from the perspective of farmers, the insufficient formal credit services willcauses the private lending to be the major sources of credit funds. The development of ruralformal finance has no significant impacts on famers’ income. The impact of formal credit onfarmers’ production is far less than that of private lending. The farmers’ demand for loansdoes not match the credit supply of rural formal financial.Based on the above judgment, this thesis analyzes the reasons causing the rural formalfinancial institutions failed to balance the dual goals from three aspects of the characteristicsof "Farming-farmer-countryside" financial services, the rural formal financial institutions andgovernments. The reasons include high transaction costs, high risks and low profitability ofthe "Farming-farmer-countryside" financial business; low management level; strongprofit-driven business target; weak innovation capability; and the imperfect systems andpolicies of rural formal financial institutions to achieve and balance the dual goals.In addition, the thesis has selected two representative models of rural formal financialinstitutions which have achieved to balance the dual goals. One is the microfinance model ofthe Grameen Bank in Bangladesh, the other is the Japanese farm co-op model. By collatingand summarizing the foreign experience, the thesis points out valuable experience for us tolearn.Learning from the foreign experience, the thesis puts forward some suggestions to solvethe problems which causing the uneven dual goals. The suggestions include improving themanagement level of formal financial institutions; building the social performance evaluationsystem and actively carrying out micro-finance business; perfecting both systems and policiesto support the rural formal financial institutions to balance the dual goals; and promoting thedevelopment of new rural institutions.The main innovations of this thesis are as following:(1) The thesis defines the meaning of the dual goals and the ways of achieving andbalancing the dual goals of the rural formal financial institutions, and analyzes therelationship between the two goals. It designs the evaluation index system. From two aspectsof financial sustainability and “Farming-farmer-countryside” credit service, the thesis also analyzes the status of balancing the dual goals, and objectively evaluates the rural formalfinancial institutions.(2) By using the super-efficiency DEA (Data Envelopment Analysis) and Malmquistproductivity index, the thesis measures and decomposes the2011-2012technical efficiencyindex and the total factor productivity change index (Malmquist productivity index) of thethree village banks in the Hulunbeier City. The empirical results show that, the financialperformance and rural economic performance of three village banks are better. Their dualgoals have been better balanced.(3) Based on more than20,000micro panel data of2006-2010rural fixed observationpoint, from the angle of dual financial structure and regional differences, the thesisempirically analyzes the impacts of formal borrowing and private lending to farmersproduction, by using the fixed effects model. The study concludes that, the impact of formalborrowing for farmers’ production is far less than private lending.(4) By using the data of1978-2009, the thesis establishes the VAR model to study therelationship between development of rural formal financial institutions and per capita incomeof farmers. The empirical results show that the development level of rural formal finance hasnegative effect to farmers’ income, and the efficiency of rural formal finance almost has noinfluence to farmers’ income. The proportion of loan of rural enterprises has negative effect tofarmers’ income. The farmers’ income has no influence to the development level and structureof rural formal finance, but it has negative effect to the efficiency of rural formal finance.Therefore, it is necessary to increase policy support to the rural financial institutions, toencourage and support the rural formal financial institutions to increase the credit service forfarmers, to develop the rural Community Reinvestment Act, and to reduce the outflows ofrural funds; the rural formal financial institutions should serve the development of townshipenterprises actively.(5) From three perspectives of the characteristic of “Farming-farmer-countryside”financial business, the rural formal fiancial institutions and the government, the thesisanalyzes the main impacts causing the rural formal financial institutions failed to balance thedual goals. Learning from the foreign experience, the thesis puts forward somecountermeasures and suggestions.