Thematic Study on Rural Financial Services in China

Publication Date: 2001
Published by: IFAD's Office of Evaluation and Studies
Document Type: Paper

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Can rural cooperative societies (RCCs) deliver better financial services in China?

This paper traces the evolution of development-financial initiatives in China and makes a comparative assessment of the different methods that have been used in China to channelise IFAD's loan meant for integrated agricultural development.

The author states that there has been a gradual shift in interventions towards using the services of local financial services institutions, such as rural credit cooperatives (RCCs), from the previous approach of government controlled directed credit delivery through project management offices (PMOs) because:

• credit delivery through PMOs is not sustainable and is a short term measure,
• savings mobilization and recycling is constrained under the PMO model,
• moral hazard is inherent in PMO model as borrowers perceive that loans from government will be written off.

• procedural limitations to the use of IFAD loans,
• high cost of funds at the RCC level,
• perceived credit risk at the RCC level limiting outreach,
• differences in lending policies and procedures.

• shifting towards sustainable financial delivery,
• reforming RCCs to increase their internal capacities,
• designing future IFAD projects in a way that takes care of mismatches in policies and procedures,
• better RCC-PMO collaboration,
• providing technical services to clients in conjunction with financial services,
• reaching those not reached by formal financial institutions.