From Beppe Grillo’s Blog, the second episode of my Documentary on Chinese Rural Economy. This time, I introduce the MICROCREDIT.
Can you tell us something about your business?
I grow peppers. My model is based on a company, a piece of land and some farmers. I own a total of 400 hectares of land.
When you started your business, how could you invest all this money? How did you get to cover all the expenses? Who did you ask for a loan from, a bank?
From friends and other people. In some cases, at fairly high-interest rates.
Can a loan be obtained from banks?
If you wish to ask for a loan from the bank, it takes some time and they have too many requirements, so it’s a bit difficult …
What kind of requirements?
For example, use the property as a guarantee. We don’t generally own the certificate of ownership. So, whether you are a farmer or an entrepreneur, as in my case, there is no way to get a loan from the bank. But one must resort to friends and the like.
Every time I talk about microcredit with financial organizations, like yours, everyone says it’s easy to get a loan. But when we talk to farmers, practically almost all of them say the opposite, that is, it is difficult to get a loan.
(Credit Department Manager, Xingyi Rural Bank): I would say that, at the moment, only in some circumstances, it may be difficult to obtain a loan. First of all, we evaluate the client’s economic conditions, check if there have been missed payments in the past, or if they are too young, around 18 years old, or if they are over 65 years old. Moreover, they are often not happy with the amount of the loan.
What do you think of the future of microcredit in China? Should there be changes in policies and laws?
(Communist Party Secretary, CEO, Xingyi Rural Bank): I think the government should set up organizations that can help with guarantees, insurance, and risks. This could help the microcredit industry.
What is the best way to increase farmers’ income? Apply for a loan for agricultural activities? or move to the city to look for a job there?
From what I understand, it should be a combination of various choices. We have various ways to meet their demands, for example, we offer some information, we support them to produce more, to expand the scope of their activities. But, as regards some farmers who do not have the possibility to look for work in the city, we can still offer them credits. We consider microcredit as a way for farmers to increase their income, borrowing money and investing in productive agricultural activities, such as buying better seeds, fertilizers, machinery.
However, we have found that it is very difficult for farmers to get loans or full loans. Formal credit institutions, such as microcredit institutions or banks, tend to lend only a half of what farmers usually ask for and the rest must be borrowed from an informal network, from family, from friends, sometimes even from the informal banking sector.
The other problem is that farmers usually ask for a loan to improve their homes, to build a bigger house, not to invest in agricultural activities. In my opinion, this is not a good use of money, because it does not help to improve living conditions, let alone their income. Then, when the farmers apply for a second loan, this time in order to invest the funds in agricultural activities, the credit control becomes more severe and the loan is, therefore, more difficult to obtain. However, we have found that when we talk to the banks they are very happy and willing to lend money to farmers. But when we talk to farmers, they tell us that it is very difficult to get loans from these formal institutions. I, therefore, believe there is a communication problem that needs to be addressed. If microcredit cannot solve the problem of how to increase farmers’ income, what else could be done?
Another possible solution is that they put their resources together with, for example, the land of the neighbours, in order to create some economies of scale.
We will continue to address these issues in the next “Chinese Rural Economy” documentary.