SEEKING FASTER IMPROVEMENT

Noting the capital shortages in the rural market, the government took steps over the past two years to improve the situation.

At the end of 2006, the China Banking Regulatory Commission (CBRC) relaxed the conditions of entry for banking institutions in rural areas, allowing investors to set up new types of rural financial institutions such as township and village banks and rural mutual cooperatives.

The minimum registered capital for rural cooperative banks, for example, was reduced from 20 million yuan to 10 million yuan, and that for rural credit unions, from 10 million yuan to 5 million yuan.

For bigger township and village banks, the bottom line was set at 1  million yuan, while loan companies and rural mutual cooperatives were required to have registered capital of 500,000 yuan and 100,000 yuan, respectively.

As of the end of 2007, 38 new types of rural financial institutions had obtained licenses, including 25 township and village banks, four loan companies and nine rural mutual cooperatives, according to a speech by Jiang Liming, the deputy director general of the CBRC's Cooperative Finance Supervision Department in Dallas, Texas, last May.

These institutions held 14.7 trillion yuan in aggregate assets, 27.9 percent of total banking assets. Their total loans outstanding related to agriculture reached 6.09 trillion yuan, of which direct agricultural loans  amounted to 1.57 trillion yuan.

The proportion of rural households having access to bank loans reached 33 percent, which benefited more than 300 million farmers.

ENHANCING MICRO-CREDIT

To enhance micro credit, the CBRC also expanded the list of qualified micro-credit lenders from rural credit unions to all banking institutions, and it broadened the target industries from planting and breeding to all agriculture-related business.

The size of allowable credit lines was raised from a range of 3,000 yuan to 5,000 yuan to a range of 10,000 yuan to as much as 3 million yuan. And loan terms got longer, rising from less than one year to as long as three years. Floating rates were also allowed.

In March 2007, the first three village banks opened in a remote area of southwest China's Sichuan Province and northeast Jilin Province, part of the government drive to provide farmers with easier access to small loans.

Moreover, private-sector and foreign institutions were allowed to participate in rural finance.

In December 2007, the Hong Kong and Shanghai Banking Corp. opened its first rural bank in Hubei Province, marking the first entry by an international bank into a rural area of China.