Research On Mortgage Of The Right To Agricultural Land Contract

Making more efforts to solve the Three Rural Problems has been underlined at the same time byThe Twelfth Five-Year Guideline in2010and the central document NO.10which was released in early2013. Increasing efforts to benefit farming policy, strengthen agricultural rural development foundation,and improving the level of agricultural modernization have became the main tasks of the socialconstruction in the new period. In the "The Twelfth Five-Year Guideline" period, as the key to build awelled-off society and maintain a sound and rapid economic development in our country, problems ofagriculture, rural areas and farmers (the Three Rural Problems) should be settled well. It is the top priorityof the Party and even the whole society in our country. Although after decades of reforming and openingdevelopment rural financial environment got a great improvement, Chinese specific national conditionscontribute to the Financial Repression in our country rural area financial market which shows a severecredit supply can not satisfy the credit need. The appearances of the Financial Repression are commercialfinancial institutions have been severely weakened, the credit service of policy-based financial institutionsdo not meet standards and the folk informal cooperative financial institutions cannot adapt to the newrequirements of the Three Rural Problem. In the recent rural credit market, there is a serious informationasymmetry, therefore the rural finance is seriously restricting the construction of the Three Rural Problem.To effectively promote the agricultural modernization, size and centralization construction, play a huge rolein promoting to the development of rural economy, improve farmers’ quality of life it is a must toaccelerate to breakthrough the trouble of rural financial repression. The Asymmetric Information Problem has been widespread in the rural credit market ofdeveloping countries, including China, so it’s easy to produce the problems of Adverse Selection and MoralHazard. To solve the Three Rural Problem properly and achieve the aim of building a well-off society, wemust tale it seriously of asymmetric information of agricultural credit market. Adverse Selection refers tothe concealing of information contributing to the unified interest rate for all the borrowers. It may be higherthan the rate which the lower risk borrowers are willing to bear. So it will result in the leaving of the lowerrisk borrowers to the outside. While the Problem of Moral Hazard refers to the default of borrowers whichhas two reasons: the lazy to work and the breakment of contracts.The typical key to relief negative influence of the Information Asymmetry is to provide security.On the one hand, security can prompt borrowers to increase efforts to reduce the probability of failure. Onthe other hand, it also can play the role of differentiating the lower risk borrowers form the others, whichcan relieve the Adverse Selection. But it is hard for Chinese farmers to provide security because they arelack of the traditional security, it has a great practical meaning to develop flexible collateral alternativearrangement on the basis of traditional collateral development.This paper proves to the contracted management of land mortgage can be a solution to thefarmers’ lack of eligible collateral is an important method according to the specific condition of China’srural areas by providing the analysis of the pros and cons of the right to the contracted management of landmortgage as security and explaining the generation mechanism of the Adverse Selection and Moral Hazardwith the model of Repeated Game and Signal Transmission. Using the contracted management of landmortgage relief of Adverse Selection and Moral Hazard caused by the Asymmetric Information can bestarted with two parts. One is increasing the value of the right to the contracted management of land ascollateral, increasing agricultural project successful probability and income and increasing the number of credit transactions and so on. The other is reducing the interest rates of financial institutions and theproportion of mortgage collateral requirements. Finally it would provide suggestions, based on the aboveanalysis, from the perspective of farmers, rural financial institutions as well as the national government torelief the negative influences of the Asymmetric Information in credit market.