Micro-credit Service to Smallholders for Income Generation by suchenfz

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									    Micro-credit Service to
   Smallholders for Income
         Generation


                Linxiu Zhang
Center for Chinese Agricultural Policy (CCAP) ,
    Chinese Academy of Sciences (CAS)
Limitations of presentation
   A presentation on rural credit service in
    general rather that micro-credit service
       BUT, most rural household credit needs are
        relatively small
   Will have limited mentioning of livestock
       BUT, studies found that expansion of livestock
        production or small enterprises are the business
        mostly need credit services
   Not intended to offer solutions
       mainly to share observations
Rest of Talk
   Why we interested in rural credit
    services- motivation;
   What is the current status of credit
    services in rural China- supply vs
    demand;
   What are needed at policy level to
    better serve rural households credit
    needs- some thinking only
    Motivation
    Access to credit service is critical to
    ensure active participation of small
    farmers in the market;
   Evidences show increased rural savings
    have not been channeled to
    agricultural/rural sectors;
       High operational cost, high risk
   Objective- lay out facts, but seek to
    generate some policy implications
Current situation – supply side
   Main financial institutions in rural area
       ABC- Agricultural Bank of China
       ADB- Agricultural Development Bank of
        China
       RCC- Rural Credit Cooperatives
   Mostly are withdrawing from rural areas
    and leaving RCC as the only one to
    provided limited services
Initiative- micro-credit
   With the initial help from international
    organizations,
   Mostly adopting Grameen Bank model,
    which stresses the importance of joint
    liability lending and regular group
    meetings,
   For poverty and women targeting
Outcomes from micro-credit
   Provided good support to rural small
    households, especially the poor;
   Project-based with limited access by small
    farmers at large;
   Heavily dependent on subsidies;
   Evidence has shown that one of the major
    determinants of success is fairly idiosyncratic.
       For example, the most successful ones were those
        that just happened to have a particularly
        committed and dynamic manager who provided
        hard-to-replicate leadership.
Other studies found out about
rural financial institutions
   High incidence of NPL;
   Lack of resources, especially in poor
    areas – been a net suppliers;
   Not much incentives from institution
    side to provide services – high degree
    of non-commercial functions;
   Bad governance?
Current situation – demand
side from field observations
   Based on a household survey data
    collected from 6 provinces covering
    1200 households;
   Documented borrowing and lending
    activities at household level
Increasing demand for credit
   From 1996 to 2000:
       Total borrowing increased from 90 (7.5%)
        to 640 times (53%) among sample
        households;
       Majority of increase coming from informal
        credit service
            For example, in 2000, loans from formal
             institutions only account for 15% of total
             household loan,
Source of informal loans
Source              Percent of total
                         (%)
Individual lender         4
Relatives                 67
Friends                   26
Collective                 2
Others                     1
                RCC plays increasing role in
                formal credit services

               100
                                    Banks
                80
                                    RCC
No. of times




                60

                40

                20

                 0
                                                          年份
                     1996   1997   1998     1999   2000
Large regional variations exist
                        6
                                                    Informal
Loan size (1000 yuan)




                        5
                        4
                        3
                        2
                        1
                        0
                            Si chuan   Zhej i ang
Percentage of households took
loan
54
53
52
51
                     With
50
                     loan
49
48                   Without
                     loan
47
46
45
44
        % of
     households
Purpose of loan use (%)
Purpose        Formal credit   Informal credit

Production:          62              42

 Agriculture         66              48

 Others              34              52

Consumption          38              58
Assessment on services
   Studies show that current rural credit service
    is far less than sufficient in meeting the
    increasing needs of rural households for
    development:
       Major constraint in small business development;
       Need “seed money” to search for off-farm jobs;
       Lack of credit for buying agricultural inputs; such
        as feed and fertilizer
International Experience
   Farmers formed associations to
    address their OWN problems
   Credit union movement to provide
    rural financing– eg. Canada
   Credit unions were outside of direct
    control of the Bank of Canada until
    some 30 years ago
Little more on farmers
associations in China
   Based on a national representative
    survey of 2459 villages in 6 provinces:
       In our 2450 village, we recorded 290 FPAs
        (several villages with more than 1)
       National point estimation of villages with
        FPAs                                  10%
       No. HHD participated                  2.9%
            The Main Economic Activities

Cropping     Subtotal                       70
             Grain and General Cropping     6
             Cash Crops                     14
             Vegetables                     18
             Specialty Crops                27
Orchards     Subtotal                       52
             Orchards                       37
             Specialty Fruits               15
Livestock    Subtotal                      128
             Hogs                           24
             Beef and Dairy Cattle          16
             Mutton, Lamb & Wool            16
             Poultry                        14
             Aquaculture                    23
             Silk Cocoon Products           14
Technologies Subtotal                       40
& Services
             General Technologies          29
             Marketing                     4
             Others                        7
Main economic activities
   44% on livestock
   24% on cropping
   18% on horticulture
   Only ONE FPA related to financial
    business ?
Unsolved Issues
   FPAs’ roles in increasing the outreach of
       credit to small farm households
     Collateral substitutes: guarantees, information
      provider, stable cash flows, etc. [but, they are not
      allowed take deposits and make loans]
   The legal status of FPAs
   Local government involvements as
    catalysts?
     Policy implications: what are
     the choices?
   Still rely on existing financial institutions?
       Already experimenting with RCC
            From involved in micro-loan to piloting reforms
   Create new rural financial institutions?
       Farmers associations – credit union?
       Informal credit activities?
Possible considerations?
   Reform of RCC needs to be associated with
    clearer property rights regime, establish
    incentive systems and governance structure
   Build credit unions – coupled with capacity
    building for efficient management;
   Relax interest controls and give more
    authority to financial institutions but have
    proper regulatory and monitoring system in
    place;
   Offer legal status to rural informal credit
    services
What can we hope if Changes
      made/allowed ?

   Increased income for
       smallholders!
Thanks!

								
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