Microlending offers lifeline to Sichuan's agricultural enterprises

The family of Huang Mingzhi, a farmer in Wangcang county of Guangyuan, Sichuan province, was hard hit by poverty after his eldest daughter was diagnosed with leukemia.

To improve his family's financial health, Huang transferred the management rights of 0.2 hectare of farmland to Wangcang-based Sichuan Mumen Tea Co Ltd, a company specialized in tea growing, production and sales, at a price of 3,000 yuan ($427) per hectare a year and received a payment of 80 to 100 yuan per day for fertilizing and removing weeds from the company's tea plantation.

His annual household income has now increased to more than 30,000 yuan, compared with 2,000 to 3,000 yuan a few years ago. It includes revenue from tea growing, pig farming, transfer of farmland management rights, working at the plantation, and running a small business.

Mumen Tea has helped lift at least 78 farmers from 20 impoverished families in Wangcang county of Guangyuan out of poverty by adopting a model that combines the resources and efforts of the government, banks, agriculture credit guarantee companies, agricultural enterprises, and poverty-stricken households.

Starting as a pilot program in Guangyuan and Yibin in 2017, the model was later promoted across Sichuan province. It allows agricultural enterprises and rural entrepreneurial leaders that lack sufficient collateral to obtain bank loans ranging from 100,000 yuan to 2 million yuan based on their creditworthiness and the level of assistance they provide for poor families.

For each poverty-stricken family that receives a job offer or is lifted out of poverty according to the current poverty alleviation standards, the agricultural enterprise that offers help is eligible for a 100,000 yuan loan.

"Our clients obtained subsidized loans as the government implemented an interest-deducted policy for this type of loan and offered subsidies to cover guarantee fees. In the end, the interest rate they paid was no more than 1.3 percent," said Liu Deqiang, vice-president of the Postal Savings Bank of China's Wangcang county subbranch.

The government also injected money into agriculture credit guarantee companies to establish guarantee funds and a risk sharing mechanism. When a default occurs, the government will assume 40 percent of the loan loss, and the relevant bank and agriculture credit guarantee company will be responsible for 30 percent each.

"This credit guarantee mechanism was built for the long run. It has a significant effect on poverty alleviation, so local governments in Sichuan have continuously injected funds into agriculture credit guarantee companies since 2017. These companies charged borrowers guarantee fees at a rate as low as 0.5 to 1 percent," said Liao Peng, deputy general manager of the department of agro-related business at the Postal Savings Bank of China Sichuan Branch.

"The policy was designed to use limited fiscal policy funds to leverage a larger amount of funds from the financial sector to support the development of leading local enterprises and reduce poverty in this way," said Yang Renhai, an official of the Guangyuan Bureau of Poverty Alleviation and Development.

So far, 974 business entities in Guangyuan have obtained loans of this type totaling 589 million yuan, lifting 5,896 families out of poverty or creating jobs for them, Yang said.

Postal Savings Bank of China, a large State-owned commercial lender, offered a 1.5 million yuan loan to Mumen Tea in 2017.

Apart from building a 133-hectare tea plantation for high-end tea growing and demonstration purposes, the company also signed contracts to purchase fresh tea leaves grown on a total area of 1,333 hectares from local farmers at a price of 800 yuan per kilogram, offered technical instructions to the farmers, and paid them 120 yuan for picking a kilogram of tea leaves, said Tan Bo, general manager of the company.

Currently, the company produces 120 metric tons of tea a year. Its annual sales exceed 23 million yuan, of which offline sales account for 80 percent.

Similar to PSBC, Agricultural Bank of China Ltd also explored a model of poverty alleviation in Wangcang county through the development of the agricultural sector.

The bank offered three-year loans ranging from 10,000 yuan to 50,000 yuan to poverty-stricken families, using a specially designed credit rating system. Borrowers could apply for this kind of small loan without collateral or credit guarantee, and the government provided funds to cover the full amount of interest paid.

"We formed a risk control team at the village level that includes leading village officials and virtuous and respectable villagers. They rated impoverished families on a 10-point scale according to their creditworthiness, labor skills, production willingness and household income. Our bank made decisions on whether or not to issue a loan to a family and how much to offer based on the ratings," said Cai Dong, general manager of the department of agro-related business at Agricultural Bank of China Guangyuan Branch.

A mechanism of coordination among the township government, the village-level risk control team and the bank was established for post-lending management. This model of poverty reduction through microlending proved effective in Wangcang and was promoted nationwide, he said.

The bank offered loans totaling 1.32 million yuan to 30 poor families in Xiuhai village, Wangcang county, alone in 2016 to help them grow 60 hectares of kiwifruit and red plums. The annual income of impoverished households in the village reached 6,000 yuan per person at present, up from 1,500 yuan per person in 2016.