Credit union proves engine for prosperity
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E-mail China Daily, November 16, 2012
The dominance of the "Big Four" banks is unshakable in most parts of China - but in Guizhou, a largely underdeveloped province, they are still far behind a local market leader in inspiring loyalty.
Even combined, the deposits of the Big Four - Industrial and Commercial Bank of China Ltd, China Construction Bank Corp, Agricultural Bank of China Ltd and Bank of China Ltd - are not much bigger than those of Guizhou Rural Credit Union, a credit cooperative which alone owns 21 percent, or more than 200 billion yuan's ($32.06 billion) worth of the province's total deposits of 1 trillion yuan so far this year.
Just a decade ago, the rural cooperative had just a few billion yuan in deposits, but it's in lending that the organization has gained the most support.
Its growth, said Chairman Wang Shujun, has gained most from a new business model introduced in 2007, which concentrates on low-risk, micro-loans to low-income local people, mainly farmers - which is ideal for a province where 80 percent of the population works in the agricultural sector.
"Our success really comes from that move in 2007, to base our business model on building a huge network of small-scale credit customers," said Wang in an interview.
Launched with the initial purpose of trimming its bad loan ratios, which were around 30 to 40 percent at the time, the cooperative started providing credit to local farmers - a step that has proved financially sensible, but also politically too, he said.
Today, its local loan book is among the country's most comprehensive and extensive, covering 95.8 percent of the province's 7.8 million farmer households.
Despite the obvious risks, its bad loan ratio is in the single digits, Wang added.
The lender has 2,244 outlets across the province, giving it a presence in most villages and townships.
Each outlet employs loan officers who are responsible for setting up and updating its customers' credit files.
Wang explained that an essential part in managing those individual credit files, is that loan officers work hand-in-hand with local government officials in closely examining farmers' creditworthiness. This strong government support, he said, makes it hard for local farmers to hide dishonesty.
In addition, the lender hires unofficial personnel to help with updating its credit files - usually village elders and senior citizens who have substantial local influence.
Each family is given a credit rating that affects the size of the loan they get and its conditions. Each family's credit rating, which has four levels, is a combination of ratings given by loan officers, local governments and their neighbors.
Jin Zhucheng, a loan officer in the credit union's Leishan county branch, explained how the credit files - which he calls the lender's "core asset" - are kept accurate and up-to-date. "Most of my job involves going into villages and talking to farmers," said Jin, who is from the Miao ethnic group, like many in the local population.
"Thanks to the help of local officials and our unofficial helpers, we know, for instance, if a couple has recently had a fight, or their son has broken up with his girlfriend."
The credit union now has over 4,000 loan officers like Jin, who together extended loans totaling 91.3 billion yuan in the first nine months of this year alone, a 25 percent increase from the same period last year.
The size of the loans varied greatly, going from 1 million yuan to as low as 200 yuan.
After building up a credit profile with the lender, farmers can get loans with little, or even no, collateral.
Being able to borrow at all can be a huge boost to local farmers, given that Chinese law stipulates land and produce cannot be used as collateral.
A glowing example of the system working well is Zhang Jinlong, a farmer from Leishan county. He says he would never have been able to own his 42 hectare tea plantation farm if he hadn't been given credit.
"It had always been my dream to own a farm. I wouldn't have got this size of loan if I had borrowed from a commercial bank, but my good credit record with the credit union helped me secure the loan," he said.
Zhang's farm now employs more than 1,000 people during harvest time, and he has become one of the richest in Leishan county.
"It was really a win-win situation, and the loan made what wouldn't have happened, happen," he adds.
For smaller loans, lenders can be given money almost as soon as they fill in an application.
Long Jun, another member of the Miao ethnic group from Leishan country, said her 1,000 yuan loan from the cooperative saved her brother's life last year.
"He was really sick and the hospital said it wouldn't treat him unless I paid the bill upfront," said Long. "The cooperative has become a very important part of our life here."
To further reduce defaults, the cooperative has a system in which individual credit records are bound together and ratings are given for villages, counties and even townships.
If one farmer fails to repay a loan, not only is his own credit rating affected, but also the whole village is affected, making loans for everyone pricier and creating what the organization calls "mutual supervision".
So far, the lender has approved 238 "credit-worthy" townships, 5,740 credit-worthy villages and even 36,958 credit-worthy groups of individual lenders.
Long Zhibo, deputy head of Leishan county, rated as a one of those trust-worthy counties, said he considers the credit union as the main engine behind its rapid economic development in recent years.
He said more than 90 percent of the loans made to 200,000 people in the county were by the union, and nearly everyone in the county now has a credit file and rating.
In 2010, Leishan's GDP grew 14.3 percent to 900 million yuan.
Total grain production hit 56,200 tons, up 6.79 percent year-on-year, and its tea industry expanded particularly fast, having sales that reached 731 tons last year, worth 87.75 million yuan.
"The credit union is so much part of life for local people, that sometimes the government consults it when making policies," said Long Zhibo.
The union's steady flow of credit has also helped maintain stable food production - vital in a province where 92.5 percent of its land area is mountainous, and in a country where any big fluctuations in grain output can threaten food supply.
The Chinese government has repeatedly stressed the importance of food production and its link to rural development.
Premier Wen Jiabao recently reiterated that rural issues surrounding agriculture, the countryside and farmers remain of "paramount importance", suggesting that more financial resources be allocated to rural areas to raise food production and promote farmers' well-being.
The State Council has invested more than 6 trillion yuan over the past decade to support rural development and grain production.
The China Banking Regulatory Commission, the banking regulator, has also been encouraging lenders such as Guizhou Rural Credit Union.
The latest figures show there are 858 such financial institutions in rural areas in Guizhou.
In their daily life, Wang added, farmers with good credit files can only be good for the economy. "That's especially true in 'credit-worthy' villages and townships. The power of public opinion is so strong, that individuals have to think carefully before they do anything bad," he said.
Guizhou Rural Credit Union credit files are never shared with other lenders, but are open to local government examination, and have been used, for instance, in the past to solve criminal cases, Wang said.
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