Rural Credit System Construction And Farmers' Microfinance Research

At present,an obstacle for commercial banks to provide micro-finance to farmers is that the microcredit information is not transparent enough and banks find it hard to control the credit risk.Rural micro-finance's target audience is the poor in rural areas,a group of people who has little credit records.Therefore,the banks have not enough information and data to assess their ability to repay.For a long period,there lacks qualified collateral or guarantee,so farmers cannot obtain financing support even though the government has been increasing financial support for agriculture.This problem has become a major constraint on the issues of agriculture,farmer and rural areas.This paper analyzes problems concerning the credit rating of farmers and the development of credit system in rural areas,which are the major obstacles to micro-finance.This paper first explicits the positive effects of micro-finance in supporting farmers to maintain and increase production,and then discusses the sources,mechanism and quantity of micro-finance that farmers can obtain.Next,this paper analyzes the obstacles in the path of rural financial institutions' providing micro-finance to farmers.Major factors suppressing the development of rural finance include risk factors,information asymmetry and adverse selection.Based on policy analysis,practical investigation and cases study,this paper will show that through an effective credit rating of farmers in the development of credit system in rural areas,the financial institutions establish a “farmer + credit investigation + credit loan” business model,which solves the information asymmetry problem between financial institutions and farmers.Both the credit records taken in credit investigation and rewarding / punishing policies reduce the opportunism and moral hazard of the farmers in repeated game,which help to form a good rural credit atmosphere.This paper traces the history of the development of rural credit system in China.It makes an overall analysis of the rural credit systems in all parts of the country.Through this analysis,it is found that in aspects of creating electronic credit files and evaluating farmers' credit,the local financial institutions have taken many innovative measures.Many of them rely on the governments' capacity in organization and coordination,especially the grassroots organizations on the village level and social organizations.Thanks to internet platforms and organizations like “Agriculture,Farmer and Rural Areas Integration Information Service Platform”,“The Municipal Credit Reference Center”,“The County-level Credit Reference Center”,“Rural Financial Service Center”,the financial institutions manage to collect the farmers' information and give them credit ratings.At the same time,the rural financial institutions,by combining the results of farmers' credit evaluation with the examination and management of loans,develop a credit risk management system for micro-finance,which encourages a large amount of loans to be made to farmers.In the process of assessing the credit ratings of the farmers,the grassroots organizations and the farmers gain more trust from each other.Once obtained more money,the farmers would work harder for the development of the countryside and agriculture.Thus,a virtuous circle for the development of agriculture and the rural areas is formed.This paper analyzes the case of the development of rural credit system in Xinjiang province.There are several highlights in this case that worth learning.(1)Establish credit documents for rural economic entities,improve the rural credit project evaluation system and clarify the evaluation criteria,establish a credit evaluation mechanism that is suitable for farmers;also,hire the secretary of Party branch in the village and well-educated local officials as credit coordinators to carry out the evaluation of rural credit individuals,villages and towns.(2)Develop the application of credit evaluation,connect the credit rating results with the credit limit,rate of interest and loan period,so that credit rating can be a positive incentive to the efficient allocation of loans.At the same time,ask the government for coordination.The local government may give preferential treatment to rural economic entities with higher credit rating,in aspects like finance,treasury support,government management and social services.The preferential treatment will bring much benefit to these creditworthy entities.(3)Further establish and improve the network of agricultural financial institutions,and encourage the non-agricultural financial institutions to enter the rural financial markets,include the innovative credit institutions like village banks,small loan companies,and fund mutual cooperatives.In rural areas with better credit rating,encourage the usage of non-cash payment instruments,like bank cards for farmers,telephone banking and Internet banking,which provide more efficient and convenient financial services for "agriculture,rural areas and farmers”.This paper makes an empirical study on the factors of the credit rating's impact on the rural loans.As the data analysis shows,firstly(1),the credit rating sets an access threshold for loans,according to which the banks are able to identify the qualified customers.To farmers with high-level credit rating,the banks increase the amount of loan when issuing loans to them.Secondly(2),the data analysis shows that it is not true that farmers with high credit rating can always obtain credit loans.For most of the time,the use of loans plays a critical role in the banks' decision making.For loans with higher expected income risk,the banks tend to require guarantees and other means to offset this part of risk.(3)The factors that have the greatest impact on interest rate are the use of loan,credit rating and the method of loan.The effect of the use of loan on interest rates is also the most obvious.(4)As for the method of loan,it is found that the banks prefers guarantor loan to credit loan.On average,the credit loan has an interest rate 0.88% higher than that of the guarantee loan.This shows that the development of rural credit system is still in its initial stage.The banks' understanding of the credit rating is also at a primary level,so for the sake of risk governance they prefer guarantor loan.In the future,as the rural credit system develops,this situation should be improved.Based on the policy analysis,case study and empirical analysis,this paper puts forward several pieces of policy advice for the development of rural credit system.Firstly(1),clarify the criteria for evaluating “credit individual "," credit village” and "credit town”,and standardize the procedure for evaluation and management.The preliminary evaluation group should be composed of elected trustworthy,righteous representative villagers and staff from the credit cooperative,so that the impartiality and accuracy of the assessment can be ensured.Secondly(2),the local government should play a leading role in the development of rural credit system.On the policy level,the local government can offer privileges to agricultural financial institutions,and provide positive incentives to credit individual,credit village and credit town.It may combine the development of rural credit system with the adjustment of rural industrial structure,and guide the farmers to select development projects.Thirdly(3),the rural financial institutions should be the hosting party.The credit cooperatives should communicate actively with the farmers and the local government,and check the results of the evaluation of " credit individual”.It should also improve the management of credit cooperators and the small credit loan mechanism,in order to build a small loan brand.Fourthly(4),promote the recognition of the assessment results.The results should be incorporated into the central bank credit system,so that it can be recognized among different financial institutions.This will largely enhance the outcome of the evaluation of credit individual,credit village and credit town.It will also promote the application of the results and save for the financial institutions the intellectual and material cost spent on the investigation,assessment.In addition,it can bring convenience to farmers when applying for loans and may increase the success rate of loan application,so that people's willingness to participate in the evaluation will be increased as well.Fively(5),the use of large data and blockchain technology in the process of credit reporting of farmers is having broad prospects.The use of financial technology,such as big data credit,can change the traditional farmer credit risk management pattern and make it more efficient.This paper concludes that the development of rural credit system,through the provision of public goods,activates the financial atmosphere in rural areas,and promotes the supply and demand of funds.On the demand level,the farmers,after getting a letter of credit or loan card through credit rating,can obtain loans from the banks in an easier way,This lowers the threshold of rural loan and simplifies the loan procedures,transforms the former "ineffective credit demand" into effective.These funds are further turned into rural investment,which promotes industrial development and stimulates the economic growth in rural areas.On the supply level,the rural credit system provides for the rural financial institutions an instrument to control financial risk.It increases the financial supply,changes the factors combination in the rural production function,allocates the production resources in a more efficient way,and improves the total output level.The development of rural credit system can also inhibit the outflow of rural funds to a certain extent.The net savings can then be used to support local development and generate higher returns.The construction of credit system and financial development in the rural areas,not only helps to correct imbalances of city and countryside dual structure,and lays a foundation for the long-term sustainable economic development in China.Therefore,the construction of credit system in rural areas should be continued and improved constantly.