Paper

Rural Credit Cooperatives in China

Reforming China's Rural Credit Co-operatives for microfinance delivery
Download 4 pages

This paper focuses on China's Rural Credit Co-operatives (RCCs), a key vehicle identified for microfinance delivery, status of their reforms and importance of a regulatory and supervisory strategy.

It discusses the:

  • Failure of four nationalized banks, ten commercial banks and NGOs in China to create microfinance access;
  • Problems in RCCs that led to pilot reforms in 2003 to:
    • Clarify ownership structure and strengthen corporate governance;
    • Transfer administrative responsibilities to provincial governments and resolve historic financial burdens.
  • Pilot outcomes:
    • Transformation of RCCs into agricultural commercial banks, agricultural co-operative banks and country level consolidated structures,;
    • Liquidation of RCCs with serious financial problems;
    • Formation of Provisional RCC Unions;
    • Provision of financial incentives;
    • Liberalization of interest rates.
  • Problems in the reform process:
    • Wrong incentive structures due to the Government's top-down approach;
    • Lack of participation by farmer-owners in restructured RCCs;
    • Lack of progress in interest rate liberalization;
    • Poor corporate governance and human resource development;
    • Continued capital outflow from rural areas;
    • Incomplete supervision and regulatory framework.

The paper states that for efficient supervision and regulation of RCCs, China needs to:

  • Draw upon the experiences from other countries;
  • Integrate the experiences of last three years of reforms;
  • Encourage high participation among key stakeholders at the China Banking Regulatory Commission's Rural Cooperative Finance department;
  • Aim towards an internal working strategy paper for RCC regulation and supervision.

About this Publication

Published