Facilitating Access to Finance in Rural Area
HAN Bin Ministry of Finance, PRC
Content
Finance and Rural Development in China
Challenges in Rural Finance Facilitating Financial Access in Rural Area
Proposed Fiscal Policy Measures
Finance and Rural Development in China
Increasing Credit Funding
Rural Credit: 01-06 CAGR12%, 06 end CNY 4.5 tri.
Expanding Service Coverage
• Rural financial institutions
ABC, ADBC, RCC, Postal Savings, new ones.
• Grain and cotton purchase
23% / 50% of annual output, no more IOU
• Agricultural development
Infrastructure, key projects & agro-enterprises
• Coverage
07 end 126,000+ outlets, 60% household needs
• Rural household capital needs
Lending: 07 end CNY 1 tri., 2.5 times 02
Promoting Rural Insurance
• Insuring rural production
07 premium CNY 5.18 bn, claims CNY 3bn. Subsidy (budget): 07 CNY 2bn, 08 CNY 6bn.
• Poverty alleviation
Subsidy: 07 end CNY 7bn = CNY200bn lending
Financial Services: Essential to Rural Development
Challenges in Rural Finance
Rural Capital Outflow
• High risk vs. Low profit
Natural, market, credit risks, etc.
Limited interest margin – high operation costs.
Unsustainable Institutions
• Poor governance and control
Ownership, management, connected lending.
• NPLs and low profitability
Insufficient Service Provision
• Business outlets 1 for 50 villages • Services limited varieties • Competition 07 end 90% loans by RCC
Imperfect Rural Insurance
• Limited coverage about 25%
Insurance companies and farmers inactive
• Disaster insurance inadequate
Financial Market Imperfections Limit Access to Finance
Facilitating Financial Access in Rural Area
Profit-seeking nature of financial institutions Mismatch of demand for and supply of finance in rural area
Vs.
Poor credit environment in rural area
Government action is necessary to correct market failures.
Facilitate access to finance in rural area through proactive use of fiscal policy measures supporting increase of financial supply and enhancing commercial sustainability.
Near-term target: Large commercial finance levered by small fiscal incentives.
Proposed Fiscal Policy Measures
Tax exemption for the new-type rural financial institutions
Exempting the three new types of rural financial institutions from business tax and corporate income tax for 5 years.
Tax reduction for other rural financial institutions
Lowering the rate of business tax to 3% for all other rural financial institutions including commercial banks.
Bonus for rural lending increase
Awarding financial institutions for rural lending calculated on the base of their annual increase in rural lending.
Interest subsidy for rural household lending
Providing interest subsidy for rural household lending enabling financial institutions to increase interest margin.
Premium subsidy and compensation for rural insurance
Expanding coverage to a wider scope of crops and livestock and setting up a lost sharing mechanism for big disasters.
Rural development equity investment fund initiative
Initiating a rural development equity investment fund investing in key rural projects, enterprises, financial institutions.
HAN Bin, currently a Director of Finance Department of Ministry of Finance, PRC, working in such areas as financial supervision of state-owned financial institutions, rural finance, government external debt management, etc., holding a Master’s Degree of Economics from University of International Business & Economics, China, and an MBA from Cranfield School of Management, UK.
This presentation was prepared for the Seminar on Challenges and Opportunities in Rural Finance held in Dallas, Texas, USA, 22 May 2008. This presentation is for discussion purpose only and is incomplete without reference to, and should be viewed in conjunction with, the oral briefing provided by Ministry of Finance, PRC. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of Ministry of Finance, PRC. Ministry of Finance, PRC, does not guarantee the accuracy of the data included in this presentation. The findings, interpretations, and conclusions expressed in this presentation do not necessarily reflect the official views of Ministry of Finance, PRC. This presentation does not constitute a commitment by Ministry of Finance, PRC, to formulate or promulgate any policy or regulation or to take any policy measure or to provide any other services.