The Policy Ways To Break Down The Deficiencies In Rural Financing

Virtually every country that has a developed agriculture also has a rural well-functioning financial supporting system. Successful practices in rural financial services from various economies can be attributable to an interactive financial supporting system between specialized and financial cooperation, which is important and meaningful to break down the deficiencies in rural financing, to raise farmers'income, to improve efficiency of agriculture, to better environment and to build a new socialism in rural areas.I. Problems facing rural financial service supply in China1. Problems in financial service supply in rural market1) Insufficient official financial supplies. Existing official financial supplies in China's rural financial market, consisting of Agricultural Development Bank of China, Agricultural Bank of China, Rural credit cooperatives, Postal Savings Banks, cannot meet farmers'demand for loans effectively due to various reasons.2) Unofficial financial services, although liable to increase supply, may imply major risks. Unofficial financial services, including underground banks, pawns, mutual aid associations, aid societies, private fund raising and private loans, refer to any financial service that is not official one, that has not been approved by government, or that is not monitored by the official monitoring system. 2. Problems facing rural financial service demand1)Low profitability with high risks. Financial institutes undertake larger credit risks as agricultural sector is subject to natural disasters and market fluctuations.2)Smaller amounts, frequent orders and seasonable fluctuations, which can be attributable to higher transactional costs.3)Lack of traditional mortgage. The lack of traditional mortgage that meets the requirement of commercial financial institutes restricts farmers from get loans from official institutes.4)Insufficient credit system. The lagging of rural credit system as well as the information asymmetry may lead the financial institutes to wrong judgments.5)Slow in rural insurance. Agricultural insurance, as compared with life insurance and property insurance in urban areas, is considered a dilemma within insurance trade for its high risks and high adjustment rates caused by disasters in agriculture.II. Financial troubles facing specialized farmers'cooperativeSpecialized farmers'cooperatives refer to cooperatives setup by producers of specific product or service providers and users on the principle of voluntary and democracy within the household contract responsibility system.Specialized farmers'cooperatives are facing some critical financial problems even though they are effective in improving the efficiency of agriculture and farmers'income, and have been recognized by governments and welcomed by farmers.1,Difficulty in internal financing within cooperativesFirst, financial input is insufficient due to insufficient capital of members. Second, the defect in the institution of specialized farmers'cooperative leads to ineffective financing.2,Limited capability of cooperatives to absorb social capitalsThe limited profitability of cooperatives and the natural trends to maximize the profitability of capitals make it difficulty for cooperatives to absorb social capitals to a larger extent.3,Lack of sound institutions and policy safeguards for cooperative financeFirst, the lagging behind in legislation relevant to cooperatives is unfavorable to cooperative financing.Second, supporting policies from the government for farmers'cooperative financing are still insufficient.4,Financial institutions cannot satisfy the farmers'cooperatives for their financial needFirst, cooperative financial environmental is deteriorating as rural financial institutes directing their capitals to other sectors.Second, the difficulties in financing are worsened by cooperatives'low credit rates and insufficient mortgages.Third, commercial banks are reluctant to provide services for cooperatives because their tendency to profits.Fourth, Lack of cooperative financial institutes is a crucial factor that causes the difficulties for cooperative financing.III. The necessity, guidelines and mode for building an interactive financial supporting system between specialized and financial cooperatives.The Third Plenary Session of the 17th CPC Central Committee call on to innovate a new mechanism for rural financial systems, to loosen the access policies for rural finance, and to speed up the paces for an rural financial system that integrates commercial finance, cooperative finance and policy-related finance. All these will facilitate the development of cooperative financial institutes such as capital mutual associations, rural credit companies, guaranteed funds, mutual insurance, and, in particular, make it possible for the co-exist of specialized cooperatives and financial cooperatives.5,The necessity of interactive financial supporting system consisting of specialized cooperatives and financial cooperatives.1)Capital availability for specialized cooperatives. Financial services based on specialized cooperatives such as mutual capital, credit guarantee will make it possible to complement and adjust capitals among cooperative members.2)To control financial risks and to lower the cost for operation and monitoring for the service providers. Specialized cooperatives, created by farmers who know each other and have symmetric information according to industrial chains on a voluntary basis help to reduce the inputs in monitoring and operations as in official commercial financial institutes, hence to control financial risks.6,Guidelines for constituting an interactive mechanism consisting of specialized and financial cooperatives.The basic form for an interactive mechanism consisting of specialized and financial cooperatives is to set up capital mutual cooperatives base one or more specialized cooperatives, which offer financial services to members such as capital, guarantee and insurance mutual aid to meet farmers'need for working capital.1) Financial cooperation based on specialized cooperatives: a) formal capital cooperatives, and b)non-registered and non-independent capital cooperatives.2) A comprehensive capital supplying system based on capital mutual associations, which consists of a credit loan platform for retail financing, an intermediate guarantee platform for commercial loans, an organizational platform for preferential policies, and warranty platform for risk control.3. Examples for an interactive mechanism consisting of specialized and financial cooperatives1) Model in Rui'an, Zhejiang2) Model in Linyi, Shandong3)Model in Gangu, GansuIV. Practices and examples of supporting policies for cooperatives abroadPractices and examples of supporting policies for cooperative financial services abroad, as compared with those in China, have the flowing characteristics:1)A sound supporting system for rural financing services;2)A multiple channels for money-raising;3)A variety of preferential policies from the governments;4)A legislation to guarantee the healthy development of cooperative finance;5)A sound agricultural insurance system in most countries;6)A strict risk-control system.V. A road map of policies for realizing the goals of financing supporting system1. To establish a sound system for rural financial institutions1) To emphasize the responsibility of the policy-related and commercial financial institutions to support farmers2) To encourage and regulate diversified new rural financial institutions.3) To support the qualified specialized farmers'cooperatives to carry out credit cooperation.4) To acknowledge the legal status of existing non-governmental financial institutions.5) To promote the cooperation between new rural financial organizations with rural policy-related and commercial financial institutions.2,Specify supporting policies for rural financeThe point is to direct more credit capital and social capital to rural areas by setting up preferential financing polices including monetary, fiscal and taxation policies.3,Improve the mechanism for monitoring rural financeIt is important to upgrade the methods for monitoring rural finance and to improve the mechanism according to the characteristics of China's rural areas, agriculture and farmers as well as rural financial service.4,Foster a sound ecological environment for rural finance1)We need to strengthen the credit system in rural areas, to manage to build a basic and nation-wide credit information database for business and individuals, and to promote credit systems of counties and towns.2)We need to draft laws and regulations that safeguards the function of rural financial institutes.5,Establish a risk-control mechanism for rural financeIt is important to establish through thorough studies an agriculture-related risk safeguard fund, which is apportioned to loan by certain ratios, to reduce the risks involving agriculture-related loans. It is also important to upgrade the risk managing of financial institutes, and to explore various risk compensation methods, for instance, the"cooperatives + retail loans"and fidelity fund, to improve the safety and profitability of loans.6,Strengthen education and training for rural financeWe need to strengthen the education and training on financial knowledge and know-hows in rural areas. Various methods can be used to increase farmers'knowledge in finance and laws and to raise their consciousness of risks and credibility. It is important to be proactive to explore new ways of cultivating talents of practical financial service in rural areas.