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Farmers Benefit from Credit Ratings
Tens of millions of farmers in China have obtained cheap, mortgage-free loans from the country's only national credit union network, taking advantage of a credit rating system much faster than their urban cousins.

Dai Xianglong, governor of the People's Bank of China (PBC), the country's central bank, said about 40 per cent of farmers in 10 major grain-producing provinces borrowed money from the government-subsidized financial institution for farming, thanks to the newly created credit rating system for farmers.

Meanwhile, in urban China, only Shanghai in east China and Guangdong Province in south China are beginning to establish credit rating systems for their residents.

The governor said 30,510 credit union branches in rural China, or 70 per cent of total branches, provided small loans for farmers with better credit records.

In its guidelines on small loans to farmers published last December, the central bank said interest rates for such small loans may be lower than the bank's benchmark interest rate.

It also urged the remainder of the unions to launch the service before the end of this year.

China's rural population totals 900 million, compared with 400 million in urban areas.

Ratings based on credit reputation

Under the newly-created credit rating system, farmers are divided into several credit rating categories by an evaluation group of representatives from the local credit union, village cadres and farmers known for their personal wealth, integrity and credit record.

Millions of farmers with good credit ratings were offered small cheap loans recently for spring plowing from the government-supported credit unions, something they had never dreamt of previously.

Kang Kuanliang, a farmer in east China's Jiangxi Province, said he borrowed 5,000 yuan (about 600 U.S. dollars) this spring from the local credit union without any red-tape, and without having to mortgage his house to the union to secure the loan.

The money he borrowed for spring plowing was twice as much as he had spent during the same period last year.

"Without the credit rating system, it would have been impossible for me to spend so much on farming," said Kang.

Wang Fucheng, a farmer in southwest China's Guizhou Province, said the system helped him beat poverty in the past two years.

As a regular recipient of relief grain distributed by the local government, Wang used to subsist on food rations.

"I used to leave half my farmland idle since I had no money to buy seeds and farm cattle.

"With the 1,000 yuan (about 120 U.S. dollars) I borrowed in 2000, I bought three piglets, and enough soybean, corn and cowpea seeds for half a hectare.

"I said good-bye to poverty that year after earning 6,000 yuan (about 720 U.S. dollars), thanks to the credit union," said Wang, who described the union as a bank of farmers.

Largely a financial novelty

China introduced the system across the countryside last year after a two-year experiment.

The central bank governor said the bank would increase loans for farmers by 250 billion yuan (about 30 billion U.S. dollars) this year.

In Humeijian village in Linqu County in east China's Shandong Province, 186 of the 600 families in the village were classified as having good credit ratings, which will give them access to mortgage-free small loans from their local credit union.

Ma Zengwu, manager of Linju Rural Credit Union, a dominant small loan lender in the county, described the credit rating system for farmers as revolutionary.

Over 70,000 families in the county had borrowed money from the union during the past two years, about 35 per cent of the total population, he said.

Meanwhile, total deposits at the union's branches in Linju increased by 600 million yuan (about 72.29 million U.S. dollars) to 1.4 billion yuan (about 168.67 million U.S. dollars), and the amount of small loans released during the past two years totaled 1.03 billion yuan (124 million U.S. dollars), double that of 1999.

"Our credit union has become a truly major financial institution in our county and our service has enabled farmers to increase their earnings," said the manager.

"It's a real win-win situation."

The introduction of the system also helped farmers across the country value their own credit records.

In Laoya Township in a rural part of Zhengzhou, capital of central China's Henan Province, 458 families with better credit records borrowed a total of 11.27 million yuan (1.36 million U.S. dollars) during the past two years. None of them was found to have failed to pay back their dues on time.

After conducting a survey in the township, Fan Jixuan, an economist with the Henan Provincial Academy of Social Sciences, said the system turned out to be of great significance in overcoming the difficulty farmers faced in obtaining loans.

A way to crack the hardest chestnut

In the past, it was very difficult for disadvantaged farmers to borrow money from credit unions since the unions had to be cautious of offering loans to those poor farmers due to a lack of a credit rating system, said the economist.

The small amounts of the loans most farmers wanted to borrow also discouraged the lenders as it was not cost effective for them, he said.

A rural family normally would need just several hundred or several thousand yuan in loans for spring plowing due to the small size of their farms, about one quarter of a hectare.

"In the end, poor farmers either had to reduce their input into farming - some even left part of their land idle -or had to borrow money from unlicensed creditors at higher interest rates."

(People's Daily June 5, 2002)

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