Jul 29, 2010 06:37 PM

Farmers Allowed to Use Land as Collateral

Farmers in nine provinces have been using farm and residential land rights as collateral for loans through a trial project since 2008, and now the program is likely to expand to farmers across the country.

“Financial products designed for farmers and innovations (for rural development) will be offered across the country” starting in the second half of this year, said a July 27 statement on the website of the People’s Bank of China, the central bank.

The pilot kicked off in October 2008 with little fanfare. Three provinces in the northeast and six provinces in central China were selected. Affected farmers were allowed to use farmland, homes and agricultural equipment such as tractors as loan collateral.

Since then, all 88 counties targeted by the project have reported surging loans to farmers. By the end of June 2010, outstanding loans related to rural development had reached 2.6 trillion yuan nationwide, up 24.2 percent from a year earlier.

The latest project statement on the central bank’s website is entitled Further Promoting Financial Products and Innovations for Rural China. It was jointly released by the central bank, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission.

Analysts say the central bank and the regulators want farmers to be more engaged in financial markets, which have long shut them out.

The statement said farmland that can serve as collateral for individual loans will still be owned collectively by all farmers in a village. And the use of land for collateral is voluntary, the statement said.

Breakthrough Policy

Agriculture officials around the country may be surprised by the latest announcement, which represents a major breakthrough for farm credit policy. But Wang Guiqin, an official at the Shandong Provincial Agricultural Department, said she couldn’t believe her eyes in May 2008 when she read a document declaring farmers in selected areas could use land as collateral.

Until then, the national Law on Collateral had clearly banned the use of farmland as collateral.

Since the 1980s, farmers have had the right to cultivate land individually and sell harvests on their own. Before that, farmers worked together in the People’s Commune system and evenly divided the harvest.

But fearing farmers might lose their most important source of income by defaulting on loans, the government had until 2008 declared farm and residential land off-limits for loan collateral.

In an interview with Oriental Outlook, a magazine affiliated with the official Xinhua News Agency, rural development expert Gang Guoying said farmers and banks still have to be cautious about signing up. He noted that farmers unable to repay loans could lose their land rights.

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