the reform of the rural credit cooperatives?

Question

what do the developed countries do with the mangagement system of the rural credit cooperatives?

Answer 1

A cooperative is governed by the charter of the jurisdiction in which it was instituted in the first place, and this charter may be amended or changed over time. A cooperative exists for the benefit of all the members, and the members ultimately are the ones who control and manage the coop for the good of all.

Answer 2

The reform of rural credit cooperatives, which started last summer in eight provinces on a trial basis, extended to 12 other provinces this summer. In this process, the central bank will play its role in the following three aspects:

Innovative Features

In the process of China’s financial reform, rural financing issues fall into two categories: One is the reform of the rural banking system which includes policy-related banking and commercialized banking, state’s capital support to enable rural areas to obtain more loans, the establishment of effective operational mechanisms to guide rural financial institutions toward optimum development, and the improvement of the farm produce future market and agricultural insurance. This is the rural financial reform in a broad sense. The People’s Bank of China initiated the study of the reform in 2002.

The second is the reform of rural credit cooperatives, which started a pilot scheme in eight provinces, an important and major task in the present stage. The China Banking Regulatory Commission mainly takes charge of the work, supported by local governments. The People’s Bank of China is also responsible for part of the work.

Rescue Rural Credit Cooperatives

A new concept developed in the reform features that the development of agriculture and rural banking should coexist and promote each other. The basic prerequisite of this is to develop the rural economy.

China might have 10 percent or more areas where a market-oriented financial system cannot exist, due to poverty, and still rely on the support of the policy-related banking system. However, it is vital that most of China’s rural areas should have vigorous commercialized banking that maintains sustained and sound development.

Marketization Needed

The second change in concept is the price. Because agriculture constitutes an important part of the national economy, the previous thinking was to grant it preferential treatment, with a rigidly controlled interest rate. As a result, rural financial institutions were unable to cover their risks with the interest rate and found it hard to survive.

This thinking was gradually changed. Rural banking institutions should be vitalized through rapidly being brought into the market economy and gradually expand their business to facilitate the development of both agricultural and rural financing.

New Exploration of Organization Structure

The third change concerns the cooperative system in rural areas. The current reform of rural credit cooperatives stresses the introduction of shareholding and partnership cooperative systems. Equal attention is paid to the capital adequacy rate, risk resistant ability and asset quality of rural financial institutions exercising both shareholding and partnership cooperative systems—criteria to measure whether a financial institution can maintain sustained development.

Remove Historical Burdens

First, efforts should be made to get rid of historical burdens on rural credit cooperatives. There are two measures. One is to continuously issue low-interest re-loans to rural credit cooperatives, enabling them to gradually get rid of their heavy burdens via a difference in interest rate . The other is to use the bill of the central bank to offset half of the non-performing assets of the cooperatives, with the remaining to be resolved by the cooperatives themselves. Later they will increase their capital funds through the introduction of the shareholding systems and improve their management structures.