Market page 19, Issue 494, Nov 15
Translated By Guo Wei
Original Article: [Chinese]

Rural credit is changing the face of the Chinese countryside. However for 25-year-old Tang Guoxiang and 23-year-old Zhang Nan, their life as loan officers does not set them apart from the masses. At dawn, Tang Guoxiang and Zhang Nan set out in their minivan to drive up the rural road of Minquan County in Henan Province.

Today is significant for Tang Guoxiang because among the seven rural households that he is going to be visiting is his first client, Yuan Yekui from Zhao Hongpo village.

Homecoming

Yuan and Tang have known each other since November 2008. At that time Yuan had just graduated college and had spent some time wandering around Zhengzhou City when he decided to return to his village, Zhao Hongpo, and plant counter-seasonal vegetables. That November Tang had just become a loan officer at the Postal Savings Bank of China branch in charge of microcredit in Zhao Hongpo village.

Yuan will never forget that after merely one day of investigation, Tang agreed to lend him 10 thousand yuan at an annual interest rate of 13.5 percent to help him to start his new business. It was also Tang's first microcredit loan. Yuan used the money he borrowed to build a new greenhouse and he quickly began to earn money by selling cucumbers and tomatoes during winter.

After his initial success, Yuan Yekui led 21 villagers from Zhao Hongpo village and established the "Zhao Hongpo Village Vegetable Farm Cooperative" and borrowed a total of 1 million yuan worth of microcredit loans from the Postal Savings Bank of China. Due to the power of the microloans pouring into Zhao Hongpo village, in three years the annual production of the village increased from 500 thousand yuan to 3 million yuan and the average annual income of villagers reached 100 thousand yuan. After witnessing the transformation of Zhao Hongpo village, many construction workers working in Zhengzhou have decided to imitate Yuan Yekui and return home and work in the agricultural industry.

The Postal Savings Bank Model

The need for financing in rural areas is growing, but capital is still flowing out of the rural market. The Postal Savings Bank of China has provided us with a case to consider when pondering how rural microfinance can provide a sustainable business model.

Since 2004, on almost the first of every month, the central government has deposited money in the Postal Savings Bank and has required them to guide the money back into rural areas. Since the Postal Savings Bank has numerous branches in the countryside and villagers rely on small loans, microloans were a service that the Postal Savings Bank was interested in providing.

By investigating the experience of the Bank Rakyat Indonesia (BRI) the Postal Savings Bank discovered that microcredit was a possibility. The head of information management of the Postal Savings Bank, Zhu Dapeng, told the EO, "The head of our bank decided that we would be the world's second BRI and make microfinance a part of our long-term business strategy."

The interest rate of the microloans provided by the Postal Savings Bank is fixed at 13.5 percent. This interest rate is very high, "but our high interest rate allows the bank to provide persistent quality service. It is inadvisable to carry out price competition in rural banking," Zhu continued.

The risks involved in granting microcredit are mainly operational. "In practice the credit risk of rural households is very low when compared to other communities, but every loan depends on the control of the loan officer. If the loan officer can operate with rigorous supervision, then he can basically put a stop to loan swindling and other risks." said Zhu. 

The role of the loan officer is of great importance. They have to manage the households of three villages and thoroughly understand the situation of each one. They are not allowed to eat meals with the villagers, but are constantly invited into the homes of their clients. The president of the Postal Savings Bank in Shangqiu in Henan Province, Liu Shaoyi, said that according to the ideology of the Postal Savings Bank, the discipline of loan officers is the key to the development of microcredit.

Image: China Briefing