The Operating Mechanism Of Rural Mutual Financial Co-Operative

Rural mutual financial co-operative (RMFC), as a newly emerging thing during the rural area financial reform, has met the needs of the rural area financial reform, made up for a deficiency of formal financial institutions in the rural areas, and to a certain extent eased the contradiction between the large amount of farmers’fund demand and the shortage of effective supply. The central government as well as the Jiangsu provincial administration has launched a series of relative policies in order to encourage the healthy development of mutually financial co-operation among farmers. Since the first rural mutual financial co-operative of Jiangsu province was established in 2005 in the city of Yan Cheng, the provincial government has put forward the RMFC pilot in 10 cities of the province, and the number of RMFCs has come to 409 by June 2013.However, there emerge quite a few problems during the development of the RMFC pilot program, such as the ambiguous legal position of the RMFC, pooling public deposits in disguised form, the fund investment deviating from the purpose of "mutual co-operation", deficiency of risk control, unprofessional personnel, lack of external supervision, disrupting the rural area financial market order, all of which seriously hinder the development of the RMFC. In order to improve the environment by protecting the interest of the RMFC members and make RMFCs develop in a sustainable way, this dissertation, by studying the case of the RMFCs of Jiangsu province, strives to locate the root problems of the operating mechanism of the RMFCs, and attempts to make some corresponding suggestion, which to some extent helps the authorities concerned formulate the relative policies on RMFCs.This dissertation, based on the data collected mainly from field investigation of the selected RMFCs of Jiangsu province as well as from the governmental authorities concerned, draws theoretical inspiration from a great amount of contemporary studies on this issue, to explore the status quo, operating mechanism and defects of the RMFC, and to make some corresponding suggestion, by analyzing the root problems in both internal operation and external supporting environment of the RMFCs. For the internal operation of the RMFC, the major problems are the ambiguous legal position of the RMFCs, pooling public deposits in disguised form, the fund investment deviating from the purpose of "mutual co-operation", deficiency of risk control, and unprofessional personnel. As for the external environment, there exist the problems of lack of external supervision and disrupting the rural area financial market order. To address all the problems mentioned above, the paper attempts to make some corresponding suggestion. Internally speaking, firstly, the legal position of the RMFC should be explicit; secondly, the capital flow should be strictly monitored; thirdly, the internal administration should be strengthened to enhance the risk control; finally, the vocational and professional training for personnel concerned should be promoted. Speaking from the external aspect, the governmental authorities concerned should strengthen the supervision over the RMFC and enhance the financial ecosystem, to provide better external environment for the development of the RMFC.