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Improving Farmers' Access to Bank Loans

Farmers in rural areas of western China need easier access to loans, an article in the Beijing-based magazine Outlook Weekly said.

Investigations at Dongchen Village in Northwest China's Shaanxi Province indicate that only 10 percent of its 700 households can get loans for agricultural and related projects. Many planned projects have been held up due to lack of capital.

In 2002, agricultural loans in Southwest China's Sichuan, Guizhou, Yunnan provinces and Tibet Autonomous Region totalled 17.62 billion yuan (US$2.1 billion). They accounted for 16 percent of the credit granted in these areas that year, 2.7 percentage points lower than in 2000.

The problem has been exacerbated by a capital exodus from rural to urban areas in western regions, and from western to eastern areas. In Shaanxi Province, for example, the deposits surplus increased rapidly to 93.82 billion yuan (US$11.3 billion) by the end of March. In 1996, it was only 8.7 billion yuan (US$1.05 billion), the article said.

This means financial institutions are lending less to local borrowers.

In recent years, the country has strengthened financial reforms, during which many branches of major financial institutions have retreated from remote rural areas.

This makes it hard for local people to get loans, the article pointed out.

Experts say small and private financial institutions are best suited to lend money to farmers in rural areas. But as the State regulates the financial system, many private institutions have been disqualified, leaving farmers short of capital providers.

Moreover, farmers cannot mortgage their land use rights, the trees they plant or their farm machinery, making it even harder for them to get credit, the article said.

Many banks fear they will not be able to recover money lent to farmers due to the lack of credit records in rural areas. So they increase the interest rate for loans.

The central bank allows financial institutions to adjust its benchmark yearly interest rate of 5.31 percent for loans.

In reality, however, the increase in interest rates for farmers in western rural areas has made it more difficult for them to borrow money. This contradicts the central government's policy of supporting the relatively backward western regions, the article said.

It suggests State banking reforms should consider the capital needs of farmers. More branches should be established in remote rural areas.

The article also argues the central government should promptly devise policies to encourage investment in the capital-starved western rural areas.

The policy that forbids farmers from mortgaging their land use rights and other property for loans should be changed to lower the cost of capital.

In China, farmers as individuals have the right to use the land, but they do not own it. The government should encourage the transfer of land use rights so that they can be mortgaged for loans.

The article also suggests loosening restrictions on the establishment of private financial institutions in rural areas. As long as they meet the financial requirements, they should be given the go-ahead.

(China Daily October 8, 2003)

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