Credit Risk Evaluation And Management Of Farmer Cooperatives Based On Default Dependence

Farmer cooperatives have played more and more significant role in promoting modern and large-scale agricultural production development and increasing farmers’ income. In recent years, the number of farmer cooperatives has increased rapidly because of the high attention from county and local. While it also faced with severe challenges with its rapid development. The problem of insufficient normative system has largely hindered the development of cooperatives, especially credit risk mechanism. The farmers usually have high default risk because of the serious self-interested thought and the market and natural disaster risk in agricultural production. The cooperatives will have substantial economic loss if without the perfect credit screening system. It’s necessary to analyze the formation mechanism of the credit risk of farmer cooperatives and establish a reasonable and effective credit risk assessment system.Based on the above background, this research summarizes a systematic review of the domestic and foreign study on the farmers’ cooperatives credit risk management, on the assumption of farmers’ credit status has dependent and contagion make a thorough analysis of the formation and conduction mechanism of cooperatives from the static and dynamic perspective along the common process of credit risk management method from risk identification, assessment, evaluation to early warning aspect.This paper consists of five parts. Firstly, analyze the credit risk sources and characteristics of cooperatives from internal and external aspects. On the basis of domestic and international research of credit evaluation, choose suitable credit risk measurement tool for cooperatives. Secondly, establish a new credit risk measurement model for farmer cooperatives on the assumption of farmers’ credit dependence and contagion, including single farmer’s credit rating and the organization’s credit loss evaluation. Thirdly, perform mathematical calculations of above model and simulate the probability density of credit risk losses of five credit risk portfolio and observe the effect of dependency between farmers and farmers’ credit default level, the concentration ratio on the loss distribution. Fourthly, build credit contagion model with nonlinear Ito’s stochastic differential equation and then use numerical analysis method to study the effect of risk transmission coefficient, credit risk dependency, credit risk management level and external disturbance intensity on credit default contagion. Fifthly, design credit risk prevention and risk-control systemic solutions for cooperative on above research conclusions.The research shows that the farmer cooperatives in China are still in the period of transition and their attributes are special enterprises with characteristics of community. We need to adopt the appropriate methods to study the credit risks of the special enterprises. Integrity evaluation index is the most important factor of individual farmer’s credit level, next is natural factor. However, the whole credit level is not only about the credit level of the individual, but also about the credit default dependency between farmers. On the assumption of the same level of credit, the credit loss of low dependency is significantly lower than the high dependency, while its loss fluctuation is far greater than the high dependency. When low credit rating in farmers’ cooperatives is relatively large, the credit risk spread faster. If effective governance supervision strength is greater than the effective contact rate, the low credit level farmers will be transited into normal credit level. When the risk transmission coefficient, credit risk dependency or external disturbance intensity is bigger, conversion rate will decrease. The cooperatives should increase the whole credit level and then enhance the cohesion between farmers, simultaneously improve the supervision and management ability of the organization.