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while great progress has been made, rural financial work also faces new challenges.

one day in early spring in february, the road in jiahetan village by the yellow river was muddy. li wei (pseudonym) was one of the few young men left in the village. he made a living by buying and selling second-hand agricultural machinery and had a house and a car in the county town. this business required capital turnover, so he applied for a loan from the local rural commercial bank at an annual interest rate of less than 6%.

if we go back 10 years, it would be much more difficult for li wei to get a loan. five years ago, the bank loan interest rate was as high as over 10%, but he still thinks the current interest rate of less than 6% is too high. after hearing from reporters that some banks have loan interest rates as low as 3% and the loan amount can be hundreds of thousands of yuan, li wei was tempted and wanted to replace the loan from the rural commercial bank.

baiyunshan village, 10 kilometers away from jiahetan, has wide and clean roads, and a grand village committee that reflects the prosperity of the entire village. the village earns tens of millions of yuan a year just from growing tomatoes, and two banks have opened branches at the entrance of the village.

these two villages, which are very different, are located in lankao, henan province, my country's first national inclusive finance pilot zone. this year, securities times reporters have visited nearly 100 villages in more than ten cities in the east, middle and west to observe the current situation of rural finance. the above story in lankao is a "slice" and "miniature" of current rural finance.

after exploring all the way, the reporter found that this contrast is the two sides of the same coin in today's rural finance. over the past decade, rural financial work has made great progress, but now it is also facing new challenges.

ways to reach farmers

according to data from the central bank, by the end of the first quarter of 2024, the balance of agricultural loans in my country was 60.19 trillion yuan. further breakdown, the balance of farmer loans was 17.72 trillion yuan, and the balance of agricultural loans was 6.33 trillion yuan, accounting for nearly 40% of the balance of agricultural loans. the agricultural loans that the reporter wants to observe and explore this time are mainly these two items.

according to data from the central bank, at the end of 2014, the balance of agricultural loans in my country was 23.6 trillion yuan, of which the balance of loans to farmers was 5.4 trillion yuan. over the past 10 years, the two figures have increased by 1.55 times and 2.28 times respectively, with the growth rate of loans to farmers being faster. this is the achievement made by the country in vigorously promoting inclusive finance in the past 10 years. in terms of physical experience, for example, li wei, a villager in jiahetan village, now has a more convenient and cheaper loan than in the past. it can be said that the problem of difficult and expensive financing in rural areas has been greatly improved.

there are many dimensions to observe the loan situation in rural areas. for example, how does the government's policy objectives regulate and guide market development? how do financial institutions compete in terms of channels, products, interest rates, etc.? is there sufficient demand for loans from farmers at present? due to the many natural conditions in rural areas, rural loan work is very different from that in cities from any perspective.

the first thing to discuss is the availability and accessibility of rural loans. cities have dense populations, concentrated market players, and dense bank branches, which makes it very convenient for customers to find banks or for banks to visit customers. however, in rural areas, these conditions do not exist, and it is very inconvenient for farmers to get loans in terms of physical space alone.

for example, in lishui, zhejiang, many rural areas are located deep in the mountains. going to a town requires climbing over many hills, and it is time-consuming and laborious for banks to conduct due diligence. another example is the alxa region of inner mongolia, which is full of gobi deserts. the distance between a single herdsman is tens of kilometers, and the bank's account manager can only visit three or five herdsmen a day.

back 20 years ago, there was no digitalization and inclusive finance was not yet implemented. apart from private lending, farmers who wanted to apply for loans could basically only go through rural credit cooperatives in towns and villages. farmers had to go to bank branches to submit various documents, and bank account managers also used the branches as their bases to conduct business in surrounding rural areas.

according to the reporter's observation, the most bank outlets in rural areas are now local rural commercial banks or rural credit cooperatives, usually one in each township. china postal savings bank (hereinafter referred to as "psb") has the largest number of outlets in rural areas as a single bank, and many outlets do not handle loan business. the outlets of agricultural bank of china (hereinafter referred to as "abc") basically cover rural areas, but most of them are concentrated in county towns, not so close to farmers.

the reporter learned from more than ten banks or government departments in prefecture-level cities that in terms of the scale of local rural loans, local rural commercial banks (rural credit cooperatives) are basically the largest in terms of total volume, accounting for up to half of the total volume. the second largest volume is the agricultural bank of china and the postal savings bank of china. the loan scales of these three banks generally account for the majority of the total local rural loans.

these situations have written and laid the basic pattern of the rural loan market.

today, bank branches are still the main channel for farmers to apply for loans. in the past 10 years, the country has vigorously promoted the development of inclusive finance and rural financial work. under the "command" of many policy indicators, the rural loan market has undergone great changes and has become lively. many banks that previously rarely carried out rural business have come to rural areas, and more ways to reach farmers have emerged under the promotion of the government and the leadership of banks.

previously, the rural inclusive financial service stations specially reported by the securities times (see our previous report "survey on the current status of rural finance: invisible village-to-village connections") are an important part of banks' reaching out to farmers.

these service stations are usually set up in rural shops or village committees. the bank provides deposit and withdrawal equipment and provides technical guidance to the staff. the main function of the service station is to help the elderly who are not good at using mobile phones to withdraw cash, deposit, transfer, pay bills and other basic financial services. at the same time, the service station will also be responsible for collecting villagers' loan needs and play the role of a loan information transfer station between farmers and banks.

this is a fast and low-cost way for banks that do not have branches in rural areas to reach farmers. for example, china construction bank, which has few branches in rural areas, has expanded its service coverage to nearly 80% of administrative villages across the country in just a few years by setting up 370,000 "yunongtong" service points (data as of august 2023).

service stations as a starting point

how to enable rural financial service stations to effectively help banks conduct loan business is a science.

some banks have developed the heads of service stations into a part of risk prevention and control. these shop owners and village committee staff who have lived in the village for many years are very familiar with the economic conditions and credit status of each household in the village, and can provide important references for banks to issue loans.

the heads of some service stations will also help banks monitor risks during lending. for example, if a farmer borrows money to raise cattle and a large number of cattle die due to disease, it will directly lead to difficulties for the farmer to repay the loan; some farmers are addicted to gambling and go gambling after getting loans, which can easily become bad debts in the end. it is difficult for banks to monitor these dynamic developments on a daily basis. with timely notifications from service stations, banks can also intervene and deal with them earlier.

therefore, all banks that want or need to expand their business in rural areas, including local rural commercial banks (rural credit cooperatives), will more or less set up rural financial service stations. of course, this is also closely related to the support and requirements of the government.

as the first national inclusive finance pilot zone, the government of lankao has done more and more in this regard earlier. after interviewing the heads of relevant departments of lankao county government and staff of several townships and village committees, the reporter learned that lankao has established a three-level financial service system at the county, township and village levels within the administrative system, including the county-level financial service center, township financial service centers and village-level financial service stations.

the farmers' loan demands are collected by the village service stations, reported to the township, and then aggregated to the county-level financial service center. at that time, in order to encourage farmers to take out loans and banks to lend, the lankao county government would provide interest subsidies to some eligible farmers and compensate banks for risks. the loan demands collected by this system are screened and connected to cooperative banks by the county financial service center for loan disbursement.

after years of operation, many bank account managers have established stable connections with many villages, and many businesses no longer need to be transferred through the above system, and the two sides can directly connect. for example, the financial coordinator of baiyunshan village will regularly collect the villagers' loan needs and submit them to the account manager who has been doing business with them for a long time. the account manager will also send the latest loan products and loan policies to the financial coordinator in a timely manner, and then publicize them.

during the investigation in various places, the reporter noticed that different regions, while setting up rural financial service stations, also mentioned that a large number of "financial village cadres" and "financial commissioners" were stationed in rural areas. however, in most areas, these personnel are account managers of local rural commercial bank outlets. they are neither full-time nor actually stationed in rural areas. they are more formally paired to strengthen the daily contact between the village committee and the bank.

rural financial service stations generally provide an important service platform and connection channel for villagers and banks, and are an important starting point for the localization of rural finance. however, as of today, this important infrastructure for rural finance has also encountered many problems and bottlenecks.

on the one hand, as the securities times previously reported, some banks or local governments set up rural financial service stations in name only in order to make the data look good. in some places, the number of service stations has decreased instead of increased.

in terms of loans, the aforementioned service stations provide many functions in the bank's lending process, which are largely limited by the person in charge of each service station. in reality, the quality and enthusiasm of the personnel vary, making many service stations far from achieving the ideal effect. during the investigation, the reporter repeatedly encountered people who knew nothing about anything, including store owners and village committee staff.

today, when the number of rural financial service stations has basically reached its peak, all regions should focus on "improving quality" and encourage the service stations to play a greater role through effective incentive mechanisms.

a wide range of loan products

the reporter saw from the documents obtained by the governments and banks in many places that the above situation of rural financial service stations is an aspect that all places will mention when summarizing the achievements of rural financial work. another aspect that is emphasized is how to innovate financial products to adapt to local rural characteristics.

in the past, except for local rural financial institutions, most banks rarely involved in rural business, and naturally lacked corresponding loan products. driven by policies from the central government to local governments, various banks have begun to move down to rural areas. after opening up channels to reach customers, the first thing banks think about is what kind of loan products to provide to farmers (or agricultural operators).

over the past few years, a wide variety of loan products targeting rural areas and farmers have emerged.

for example, ji'an, jiangxi province - a national-level inclusive financial reform pilot zone under construction - mentioned in its practice summary at the beginning of 2024 that it has innovatively launched more than 180 financial products of various types, including rural revitalization and other fields. among them, the "house use right mortgage loan" is the first of its kind in the country, and the "jinggang honey pomelo loan" and "sanbao inclusive loan" are rural financial products exclusive to ji'an.

in its 2023 rural financial work report, guangdong gaozhou rural commercial bank stated that on the one hand, it will enrich agricultural credit products, closely follow the principle of "one county, one park, one town, one industry, and one village, one product", and actively develop exclusive financial products such as "lychee and longan loan" and "tilapia loan" for cluster industries and characteristic industries in professional towns and villages; at the same time, it will launch exclusive loan products for individual industrial and commercial households, farmers, and citizens according to different customer groups and needs.

in summary, agricultural loan products across the country can be divided into three categories: first, those using land and agricultural resources as collateral, such as the above-mentioned "housing site use right mortgage loan" in ji'an and the "water loan" in lishui, zhejiang; second, those focusing on local characteristic industries, such as the "lychee loan" in maoming and the "greenhouse loan" in lankao; third, those based on the population, such as the "work loan" launched by fangda rural commercial bank in the alxa region of inner mongolia and the "women's loan" established by many local banks for rural women.

when the reporter was investigating a rural commercial bank branch in western guangdong, he saw a wall display board with more than 30 loan products listed, including the above three categories. generally speaking, local banks have richer agricultural loan products, while state-owned banks and joint-stock banks have relatively simple loan products.

the increasing variety of agricultural loan products is a good thing overall. from a marketing perspective, many farmers are still reluctant to take out loans due to traditional ideas, and some do not understand bank products. loan products based on population, industry, and collateral as core features are easier for farmers to understand and accept, which is conducive to business development.

however, it is worth noting that in reality, some so-called special loan products are innovated for the sake of innovation, which is to change the original product into a "nesting product" with a new shell or keep the underlying logic unchanged. such products not only waste resources, but also have little demand for loans, and are more like "formalism" in loan products.

loan demand under pressure

corresponding to the abundance of loan products is the lack of loan demand.

the whole village credit is a method commonly adopted by banks in rural loan work. simply put, the bank conducts preliminary due diligence on each household in the village. once the conditions are met, the farmers become "credit users" and the village becomes a "credit village". the villagers will obtain a certain amount of credit from the bank.

take lankao as an example. since 2017, lankao has promoted the whole village credit model in the whole county, collecting 168 indicators of farmers' information, and dividing farmers' credit rating into three levels according to their credit rating, corresponding to inclusive credit lines of 30,000 yuan, 50,000 yuan and 80,000 yuan respectively, and then evaluating credit villages and credit townships. by the end of 2023, lankao had evaluated nearly 140,000 credit users and 318 credit villages.

however, credit granting is not the same as using credit. only when farmers actually use the credit limit can it be considered a loan. securities times reporters learned through interviews the core indicators of village credit granting in some regions, based on which we can observe the current rural loan demand to a certain extent.

the chairman of a rural commercial bank in a large agricultural city in south china told reporters that the local rural credit system currently has an assessment index of 18% for the credit rate of each rural commercial bank for the entire village, which means that for a credit line of 10 million yuan, the actual loan generated is 1.8 million yuan. this indicator requirement is not high, but some rural commercial banks still have a credit rate of only 10%.

litchi is a major industry in maoming, guangdong, and local banks have launched a special "litchi loan" product. however, many villagers who grow lychees themselves told reporters that they do not need to rely on loans to grow lychees. the planting area of ​​these farmers is usually around 10 mu. a large-scale lychee planter in gaozhou, who operates a company and has a thousand mu of lychee orchards, told reporters that local lychee planting is mainly small and scattered farmers, and they generally do not need loans. the ones who need loans more are large-scale planters. judging from the planting area, only 30% of large-scale planters have loan needs.

the degree of loan demand varies in different regions. the reporter learned in zhejiang that the credit utilization rate of the whole village is about 30%. in ji'an, jiangxi, a head of a village bank lamented that after years of hard work, the bank has achieved a performance in deposits that many peers envy, but now the big problem is that the funds cannot be loaned out. the deposit interest rate of village banks is higher than that of other banks. they cannot lend money, and the enviable high deposits have become a burden.

the situation in the alxa region of inner mongolia is very different from that in the eastern and central regions.

the head of the inclusive credit department of alxa rural commercial bank said in an interview with a securities times reporter that the bank's credit utilization rate for the entire village is currently over 70%. the main reason is related to the natural geographical environment of alxa, where the land is vast and the population is sparse. a farmer in the alxa farming area may have dozens or even hundreds of acres of land, and the herders have an even larger area of ​​​​animal husbandry. when farmers reach the planting season and herders need to buy a large amount of feed, the capital demand can reach hundreds of thousands of yuan. in this case, the credit utilization rate of farmers and herders in alxa is naturally much higher than that in guangdong, jiangsu and zhejiang. however, 70% is not the high point of the credit utilization rate of the entire village of alxa rural commercial bank. in previous years, it could reach 90%, and it has been declining in recent years.

after interviewing many parties, the reporter found that the aging of the rural population and the loss of population are important reasons for the decline in loan demand. for the main force of rural finance, the rural commercial banks, the decline in loan demand they face is also because the big banks have snatched away many customers after sinking to the countryside.

how to solve the “involution” among peers?

since the investigation began, securities times reporters have communicated with more than 30 senior bank executives, front-line business personnel and regulatory departments in different regions over the past six months. at the end of the conversation, one topic that always came up was that after the big banks moved down to the countryside, there was serious "involution" among banks, and "price wars", "picking the best" and "stacking big customers" squeezed the living space of small and medium-sized banks, especially rural commercial banks.

in its previous series of reports on inclusive finance, the securities times has repeatedly analyzed the current situation of "involution" in the banking industry in the field of inclusive finance. the case of li wei mentioned at the beginning of the report is a reflection of the price war between banks in the current rural loan market.

the heads of rural commercial banks in three different places in the east, middle and west said in an interview with reporters that the average annualized loan interest rate of their bank's inclusive loans is currently around 5%, which is the lifeline of financial institutions such as rural commercial banks that can hardly be reduced. in their view, this is the result of the sinking of large banks. in the past, the average loan interest rate of these banks was around 8% or even 10%, which had sufficient profit margins. when the large banks sank to the lower levels and used 3% or even lower interest rates to quickly grab the market, the rural commercial banks suffered serious customer loss and had to follow suit to lower interest rates.

many industry insiders who defend the big banks regard this as normal market competition behavior. but what is often overlooked is that the current sinking of the big banks is due to strong policy intervention, rather than considering rural financial business as an important direction for long-term sustainable development. many rural commercial bank personnel complained to reporters that the reason why the big banks have such low-interest products is that their primary goal is to complete the assessment task, and whether they are profitable is not a priority. even if they lose money, the big banks with large businesses can make up for it with other lucrative businesses.

some rural commercial bank personnel also pointed out that when large banks go to rural areas to compete for customers, the "grabbing the best" and "building up big customers" that appear will suddenly increase the disposable funds of many people, but they will suffer the consequences in the end. for example, blindly expanding production will lead to unbearable losses due to poor management, which will bring risks to banks.

on the other hand, they also asked, if there is no strong policy intervention in the future, will the big banks that are now sinking withdraw from the rural market again? if they withdraw, what will be left?

there may be no answers to these questions at present. what needs to be considered is that, in the context of focusing on preventing risks in small and medium-sized financial institutions, the risk status and survival space of rural commercial banks and village banks are already narrow. the series of chain reactions caused by the sinking of large banks have, to a certain extent, aggravated the risks of small and medium-sized financial institutions, which is not conducive to the overall risk resolution.

more than a decade later, the rural financial market, which was once little-known, has now become a battlefield for banks to compete with each other. why?