Banking News
- New village banks to aid China's rural banking industry
Date: 2-Mar-2007 Sources: (Xinhua Online)
Two village banks were inaugurated on Thursday in a remote rural county of southwest China's Sichuan Province in the government's latest drive to provide farmers with easier access to small loans.
The Huimin village bank and Huimin finance company, located in Yilong county on the outskirts of Nanchong, are among the first five village banks to be approved by the China Banking Regulatory Commission (CBRC), the industry watchdog, said Cheng Keng, deputy director of the commission's Sichuan provincial branch.
'The two grass-roots financial institutions will increase lending to the local farmers and boost development in the rural county,' he said.
Lu Longyun, a 37-year-old villager from Ma'an town of Yilong, was the first to get a 1,000-yuan loan (128 U.S. dollars) from Huimin finance company on Thursday. 'I've raised an additional 1,000 yuan in cash and plan to buy 1,000 ducklings,' he told Xinhua.
Last year Lu managed to increase family income by 20 percent thanks to his 20 ducks.
According to Huang Guangwei, president of Huimin village bank, no warranty or mortgage is required for the farmers to get a loan. The lenders simply consult village officials and peasants-turned-businessmen concerning the applicants' credit standing and repayment capacity.
Huang said the interest rate for the loan is between eight and 10 percent, higher by two to four percent than the current interest rate in urban markets because of higher costs and more risks.
But he said the rate is lower than the average 12 to 15 percent charged by unlicensed lenders -- well-off farmers and local businessmen who are often the only creditors when impoverished villagers cannot prove their creditworthiness with rural cooperative banks.
For the moment, however, local farmers seem more interested in depositing their savings in the village banks than applying for a small loan.
Within an hour of its opening, more than 20 people lined up at the village bank to deposit money -- ranging from 100 to 9,000 yuan (12.8 to 1,154 dollars) each.
'I trust them and I hope the money I deposit can solve someone else's crisis,' said Sun Hongxiang, 54, a peasant-turned-businessman who has made a small fortune by selling shoes.
He deposited 9,000 yuan at the village bank and the interest rate is the same as the official rate set by the central bank, which is 0.72 percent for on-call deposits and 2.52 percent for 12-month time deposit.
China has been trying to channel lending to the countryside to boost rural development and narrow the growing urban-rural income gap.
The Huimin village bank has a registered capital of 2 million yuan (256,410 dollars), with the state-owned Nanchong Commercial Bank holding 50 percent of the shares and five private companies holding 10 percent each.
The Huimin finance company, a lender wholly owned by Nanchong Commercial Bank, has 500,000 yuan (64,102 dollars) of registered capital.
'The village bank will be able to make ends meet when its savings total 50 million yuan and loans reach 30 million yuan, if the rate of non-performing loans is around one percent,' said Huang Guangwei, president of Huimin village bank.
Four other village banks will become operational in the province before the end of August, according to Cheng. 'These will provide opportunities for more investors to enter the rural financial market.'
He said the reform is also being implemented in five other western provinces including Qinghai and Gansu.
'It stems from policies and regulations publicized by the CBRC in January to facilitate banks' entry to the rural market and improve their financial services,' he said.
The regulations lowered the required registered capital to a minimum of 3 million yuan (384,615 dollars) for a county bank and 1 million yuan (128,205 dollars) for a village bank. The threshold capital for a lender is still lower by at least 50 percent.
China's rural financial market is underdeveloped, according to the State Bureau of Statistics.
It said the country would need 15 trillion yuan (1.92 trillion dollars) to fund its new countryside construction by 2020, most of which will come from financial institutions. But the rural financial network and services currently in place in many areas would not meet the demand.
'Village banks will mushroom to help fill up the gap,' said Huang Guangwei. 'We've found in our market research that there is a huge demand for banking services from individuals and small businesses in the countryside.'
But they have had little access to credit loans and other services since an industrial reshuffle forced most state banks to withdraw their rural outlets in the late 1990s, leaving behind only the Agriculture Bank of China, rural cooperative banks and postal savings banks.
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