International Business and Management Vol. 10, No. 2, 2015, pp. 43-47 DOI:10.3968/6807 ISSN 1923-841X [Print] ISSN 1923-8428 [Online] www.sanada.net www.sanada.org Study on Rural Mirofinane System s Defets and Risk ontrol Based on Operational Mode YANG Xijuan [a] ; ZHANG Shijun [b],* [a] Shandong Provine, master of Qingdao Binhai ollege, Qingdao, hina. The major investigational fields are the poliy of international trade. [b] Shandong Provine, assoiate professor and dotor of ity ollege of Wenzhou University, the researher of private eonomi researh enter of Wenzhou University, Wenzhou, hina. The major investigational fields are the poliy of international trade, international investment, regional eonomy and industrial struture. * orresponding author. Supported by the general projet of the department of eduation in Zhejiang Provine (Y201430449); and the key researh base about soial sienes in Wenzhou ity (14jd07). Reeived 25 February 2015; aepted 10 April 2015 Published online 30 June 2015 Abstrat An attempting investigation of the present situation of the town and village s miro redit in the rural areas, by modeling the basi operational mode of the rural redit ooperatives and its ash flow proess, as well as doing the analysis and assessment of risk and the orresponding problems, onluded that whether the rural redit ooperatives in rural areas of the most ommon mirofinane mode is healthy or not, so as to predited further the possible development and ontinue to pay attention to the latest development phenomenon. Key words: Rural mirofinane; Rural redit ooperatives; ash flow; Risk assessment; Reform trend Yang, X. j., & Zhang, S. j. (2015). Study on Rural Mirofinane System s Defets and Risk ontrol Based on Operational Mode. International Business and Management, 10(2), 43-47. Available from: http://www.sanada.net/index.php/ibm/artile/view/6807 DOI: http://dx.doi.org/10.3968/6807 INTRODUTION Miro loan known as miro finane is the relevant agenies aording to the farmers eonomi onditions and the redit degree loan to farmers in the approved amount and period. The loans are usually used for prodution, with the feature of small amount, short-term, no any guarantee flexible form of guarantee, low market interest rate s level, and member s organization. In rural areas, miro loan is in very important position in the alloation of funds, helping farmer households (hereinafter referred to as farmers) prodution and oupies. The rural mirofinane operation has three basi models as follows: The first is the peasant joint guarantee loan. The establishment of 5~10 households set up joint guarantee to do group loan, the households are guarantor for eah other, if there is one household annot timely repay the loan, the other members in the joint guarantee will have the liability for satisfation. The 5 households in the next few years will be diffiult to get a loan. These loans make full use of the supervision and restrition between farmers and redue the loan risk, with its relatively large amount; the proportion of the loans amount in the total loans is generally higher. But the loans issued only to long-term fixed residene village. The seond is redit loan system. It is ontrolled by the rural redit ooperatives, assisted by village ommittee members, selet redit village in the township and village and the redit users in the shareholders. The users an obtain larger possibility of redit loans, higher amount. And as time passed, the redit index refleting on the loan amount will inrease. The third is personal mortgage loans. If farmers obtain the loans, they have to provide the real estate property and other ertain mortgage or guarantee. The rate of suh loans approved is relatively low, the loan amount is less aordingly. 1. THE ONSTRUTION OF RURAL REDIT OOPERATIVES ASH FLOW MODEL In general, the rural redit ooperatives balane held on deposits is less than loan balane, rural redit ooperatives has no other soure of funds, so the rural redit 43 opyright anadian Researh & Development enter of Sienes and ultures
Study on Rural Mirofinane System s Defets and Risk ontrol Based on Operational Mode ooperatives need to loan from the entral bank; and the farmers will take new debt in old debt to maintain liquidity and turnover. So we believe that farmers will ontinue to get loan from the rural redit ooperatives. Based on the above analysis, we an get the following model: If rural redit ooperatives deposits amount is S, the deposit interest rate is r s, then the refinaning amount is L z, the refinaning interest rate is r z, Aording to the BR, rural redit ooperatives apital adequay ratio should reah r, the rural redit ooperatives equity apital (share apital et.) should be (S+L Z ) r 1. Therefore, the rural redit ooperatives available apital should be (S+L Z )/(1 ). The BR also stipulates that rural redit ooperatives reserve ratio should be Re (Emergeny fund s deposit interest inome rate in the entral bank and its ost is basially the equal, so we will not onsider effet of emergeny funds in alulation of the profit). So the emergeny amount is S r e, therefore, the rural redit ooperatives loans amount is [(S+L Z )/(1 )-S r e ], but beause the loal miro loan demand is more than the rural redit ooperatives provided amount. And the rural redit ooperatives purpose is profit, so in most ases, rural redit ooperatives will loan to farmers with miro loan. For farmers, if we take all the farmers as an abstrat subjet: in the rural redit ooperatives the outstanding of deposit is S, the interest rate is r s, the loans he reeived is L, it will be L=(S+L Z )/(1 )-S r e, the loan interest rate is r L ; farmers produtive inome is E. Bank of hina Rural redit ooperative Farmer loan loan again Figure 1 ash Flow Diagram Form (1) Rural redit ooperative ash Flow Model Figure 2 Rural redit ooperative ash Flow Model Point I: The rural redit ooperatives deposit is S, the ash is (S+L Z ) r. 1 Point II: The rural redit ooperatives deposit S and Bank of hina refinaning L Z, ash is (S+L Z )/(1 ). Point III: The rural redit ooperatives loan to farmers, ash is S r e. Point IV: The loan and interest the rural redit ooperatives reovered, the ash is (S+L Z ) (1+r )+[(S+L Z ) (1+r )- S r e ] r L Point V: Rural redit ooperatives pay bak the refinaning and interest, at same time pay bak the farmers deposit and interest. The ash is (S+L Z ) r +[(S+L 1 Z )/ (1 )-S r] r L -S r s -L Z r Z (2) The Farmer s ash Flow Model Figure 3 Farmer s ash Flow Point I: Farmer s surplus apital last prodution yle is S. Point II: Farmers will surplus apital S save in rural redit ooperatives, at same time got the rural redit ooperatives loan L. Point III: Farmers got the prodution inome E, the ash is L+E. Point IV: farmers pay bak rural redit ooperatives loan and interest, got the deposit and interest the rural redit ooperatives paid, the ash is E+S (1+r s )-L r L. In order to disuss w the rural redit ooperatives and the mirofinane model with farmers as main body is healthy, the normal rural redit ooperatives operate regularly, the operating onditions of rural redit ooperatives and farmers should be onsidered. (1) Rural redit ooperatives ost: =S r s +L Z r z ; (Formula 1) Inome: E=[(S+L Z )/(1 )-S r e ] r L (Formula 2) So the rural redit ooperatives profit will be R=[(S+L Z )/ (1 )-S r e ] r L -S r s -L Z r z =S [( r 1 e ) r L S ]+L Z [ r L 1 z ] (Formula 3) (2) Farmer ost:' L r L =[(S+L Z )/(1 )-S r e ] r L; (Formula 4) Inome:E'=S r s +E. (Formula 5) So the farmer s profit will ber'=s r S +E-L r L =E+S [r S - ( 1 1 e ) r L ]-L Z r L (Formula 6) 1 After alulation, we found that: the rural redit ooperatives and farmers profits both are from the farmers prodution operating inome E. So that if farmers an regularly operate, have more or less inome diretly affets the regular operation of the rural redit ooperatives; In addition, if poor management will ause the bad and doubtful debts of rural redit ooperatives, whih will bring onsiderable blow to rural redit ooperatives. Therefore, when the farmer s profit is less than 0, whih means farmers are at loss, farmers an not repay the loans from rural redit ooperatives; So in the regular operation, the farmers profits must be more than or equal to 0. In fat, the fat is the farmers with new debt in old debt an not obtain big profits every year, whih is to say farmers profit is equal to 0. So the ability of farmers to resist risk is very small. When farmers manage badly or enounter unexpeted events (disease, natural disasters) they have no ability to repay the loan. The farmers profit is R'=S r s +E-L r L =0 (aording to the Formula 6), rural redit ooperatives profits is R=[(S+L Z )/(1 )- S r e ] r L -S r S -LZ rz=e-l Z r Z (aording to the Formula 3). Therefore, the rural redit ooperatives profit is very small and all depends entirely on farmers prodution and operation. opyright anadian Researh & Development enter of Sienes and ultures 44
YANG Xijuan; ZHANG Shijun (2015). International Business and Management, 10(2), 43-47 2. THE INFLUENE OF MAROEONOMI VARIABLES FOR RURAL REDIT OOPERATIVES OPERATING RISK From the above analysis we an see that if farmers operating ondition is not good, the rural redit ooperative will not be able to stay in business, the mode of miro loan operation will ollapse. Therefore, this operation mode as the only finanial institutions with the rural redit ooperatives is fragile; anti risk ability is too small. The maroeonomi indiators hange will influene farmers and the rural redit ooperatives ash flow and inome, in the impat of the hange of the maro eonomi indiators the rural redit ooperatives is likely to ollapse. 2.1 Deposit s Base Rate r s Alteration Although the deposit base rate has been relatively stable, but taking into aount of the eonomi situation, espeially the problems of inflation, the potential risk of the deposit base rate for mirofinane operation still an not be ignored. If the deposit benhmark deposit rate r s inreases, it is obvious to impat on the rural redit ooperatives. From =S r S +L Z r Z (Formula 1), R=S [( 1 1 e ) r L S ]+L Z [ r L 1 z ] (Formula 3), we an see the rural redit ooperatives s operating osts inrease, the profit will further redue; the original rural redit ooperatives profits is very small, in the small inrease of deposit interest rate, it may ause the loss of rural redit ooperatives, or even bankrupt. If the deposit benhmark deposit rate r S is reduing, on the surfae it seems it will redue the ost of peasant redit ooperatives, inrease profits of rural redit ooperatives, there are ertain benefits to the rural redit ooperatives operating; but in fat, on the other hand, the deposit benhmark rate is reduing, for the farmers that the profit in the whole prodution yle is very small, almost 0 in terms, it is relatively large impat. R'=S r S +E-L r L (Formula 6), while the inome of the farmers will be further redued, it will ause the farmers loss and bankrupt. 2.2 Benhmark Loan Rate r L s Alteration ByR=[S(S+L Z )/(1 )-S r e ] r L -S r S -L Z r Z (Formula 3), if the benhmark loan rate dereases, the rural redit ooperatives interest inome of loaning to farmers will derease obviously, it will be devastating blow to the rural redit ooperatives. If the benhmark loan rate inreases, from the R'=S r S +E-L r L (Formula 6), ating on the farmers, farmers prodution gains eah year may not be able to pay the loan interest, so the farmers are likely to give up its miroloan, resulting in the whole operation mode ollapse in disorder. 2.3 Refinaning Rate r Z, Refinaning Total L Z s Alteration From =S r L +L Z r Z (Formula 1) we an see, in the large loansl Z, and the inrease of refinaning interest rates r Z will have great impat on the ost of the rural redit ooperatives, derease a lot profit of the rural redit ooperatives. Although in the urrent national poliy, the entral bank should not raise loan rate; but onsidering the inflation rate ontinues to rise, we should pay more attention to the potential risk of re loan rates to the rural redit ooperatives. In fat, in the present situation, the refinaning interest rate is relatively less, that is [ r L - 1 r Z ]>0, it is positive orrelation between the rural redit ooperatives profits and refinaning total L Z. From R=S ( 1 1 e ) r L S ]+L Z [ r L 1 z ] (Formula 3), if the entral bank redues the refinaning amount L Z, it will redue the peasant ooperatives profits. Moreover, when the rural redit ooperatives an not meet the loal loan demand of urrent situation, Refinaning amount reduing will bring diffiulties to the rural redit ooperatives. 2.4 apital Adequay Ratio r s Alteration Only from the rural redit ooperative profit formula R=[(S+L Z )/(4 )-s r e ] r L -S r S -L Z r Z (Formula 3), we an onlude that apital adequay ratio r inreasing will lead to improve the profit of rural redit ooperatives. But in fat, rural redit ooperatives finaning is diffiult, the total equity apital is less. Therefore, the disussion of apital adequay ratio should be onsidered as follows: Rural redit ooperatives apital (i.e. equity apital) is onstant (E), total assets will be E/r ; The deposit and relending will be S+L Z = E r (1 )=E ( 1 r -1). So the apital adequay ratio inrease will lead to the upper limit of the total deline in the rural redit ooperatives, thereby redue the agriultural redit ooperatives loans amount, redue the inome of peasant ooperatives. 2.5 Reserve Rate r e s Alteration From the rural redit ooperatives profit alulation formula R=[(S+L Z )/(1 )-S r e ] r L -S r S -L Z r Z (Formula3), we an see learly, if BR stated rural redit ooperative s reserve ratio inrease, it will redue the rural redit ooperatives available total loan, redue the inome and profit of rural redit ooperatives. Further disussion: beause atually the total loans L Z obtained from the entral bank is muh more than total deposits of farmers S, (suh as deposit ratio is up to 400%-500% sometimes), so from the formula R=[(S+L Z )/ (1 )-S r e ] r L -S r S -L Z r Z, we onluded: influene of refinaning interest rate r Z s hange in rural redit ooperatives ost and profit is the muh larger than the influene of the deposit. Benhmark interest rate hange. Therefore the urrent inflation rate going up atually will bring great pressure to the entral bank, then the refinaning interest rate is likely to rise, whih will bring irresistible impulse to the rural redit ooperatives. 45 opyright anadian Researh & Development enter of Sienes and ultures
Study on Rural Mirofinane System s Defets and Risk ontrol Based on Operational Mode In addition, the entral bank intends to gradually redue the total refinaning, whih make the rural redit ooperatives on the road to provide for themselves. But in fat, rural redit ooperatives finaning is diffiulty, loan demand is a lot, loan and deposit ratio is very large. In view of the urrent situation, if the entral bank redues the loan amount, it will lead to sharp deline of the rural redit ooperatives loans amount and revenue, whih will lead to the bankrupty of the rural redit ooperatives. As the required reserve base is S, total deposits or reserves =S r e, onsider that the deposit S in the total assets ratio is smaller, so the hange of the reserve ratio an make little effet to available total loans in the rural redit ooperatives. But the apital adequay ratio r is different, it requires the equity apital deposit and refinaning sum ratio (S+L Z ) reahes r /(1 ). In fat, ompared to large total deposits and loans, the rural redit ooperatives equity apital is not up to the standard, so farmers loan from buying shares in the atual operation, even so, rural redit ooperatives apital adequay rate attained is still very diffiult. 3. THE INSTITUTIONAL RISK FAED BY RURAL MIROFINANE 3.1 The Finanial Risk Beause the rural redit ooperative an not ahieve ommerialization truly, and get independent, healthy and effetive operation itself, its whole ash flow has a strongly dependent on the outside word so as to bring the great finanial risk. Seen from the maro point of view, we analyze suh risk as the following viewpoints. (a) If the benhmark interest rate rises, of ourse, the deposit interest rate goes up, too. On the one hand, it will inrease the operational osts of the rural redit ooperative and affet the management. (b) If we keep other interest rates be unhanged and the benhmark interest rate of ordinary loan be rising generally, then the loan interest rate will inrease exponentially. Beause of the low antiisk apability and the affordable limited sope of interest rate about the farmers, it is possible that the sharp flutuations of the interest rate have a strong impat on loan demand so as to make the soure of profit about the rural redit ooperative be redued. On the other hand, it may inrease the possibility of bad debts, beause the farmers an not afford the interest. () In the situation of maro eonomy flutuation, the lending rate will be improved on a ertain pressure (suh as inflation). Under the ondition of the loan interest rate about the rural redit ooperative being unhanged, the huge operating osts may lead to nearly having no profits, even having a loss. 3.2 The Risk of Operating Model From the viewpoint of rural redit ooperative itself, there is still a onsiderable risk for this operating model. So far, the profitability indiators and loan indiators, whih the redit union gives to the township and ountry rural redit ooperatives, have been inreasing onstantly. onsidering its own interests, the workers of the subordinate rural redit ooperative may inrease the amount of the loan in order to reah the total issued indiators. If this extent of borrowings exeeds the produtivity gains whih the loal farmers an ahieve, the new loans are likely to beome bad debts. In addition, the loan-deposit ratio is basially higher than 200%. And the apital adequay ratio is seriously low. If massive natural disasters our, the farmers an not afford the payment. And the rural redit ooperative has no ability to go on run beause of the hundreds and thousands of bed debts last year. These own risk still needs to rely on the support of the national apitals to avoid. Suh a small village or town rural redit ooperative annot be digested by itself. 3.3 The Payment Risk Beause of the singleness of the rural redit ooperative business objet, on the one hand, the ash flow yle is almost onsistent with the prodution yle of the farmers. After granting the redit in the period of spring plowing, reserve fund of the rural redit ooperative is usually seriously insuffiient. And it often regains a normal state after it has reovered the loan at the end of the year. Sometimes, the rural redit ooperative should delay the payments when the farmers deposit needs to be ashed. Therefore, the redibility of the rural redit ooperative is not very high in the eyes of farmers so as to lead to many people who don t need loans more willing to hoose the state-owned ommerial bank deposits. Suh reputation and image in farmers heart an affet the soure of the rural redit ooperative and the long-term development. On the other hand, owing to the limitation of the prodution about farming and animal husbandry, it has a strong dependeny upon the natural onditions. The antiisk apability for the rain-dependent farmer is very low. Then, a part of risk is transferred to the rural redit ooperative by means of petty loan. Moreover, beause of the bad debts of many people, the natural disaster of an area may lead to the diffiulty of the rural redit ooperative on-going operation. 3.4 The redit Rating Risk Although the rural redit ooperative has obtained a ertain ahievement by the small redit rating, it is still hard to get the true, fair and effetive results by the system of redit rating. First of all, the annual inome depends on how well the natural situation in this year gets beause the loal farmers are always rain-dependent. When the rural redit ooperative issues the loan, it an not estimate the annual inome of the lender aurately. And as far as the loal farmers are onerned there is nearly no assets used for mortgage. The rural redit ooperative an hardly establish a omparatively perfet information file in this opyright anadian Researh & Development enter of Sienes and ultures 46
YANG Xijuan; ZHANG Shijun (2015). International Business and Management, 10(2), 43-47 respet. The urrent evaluation method of the rural redit ooperative greatly depends on human fators, espeially, the personal subjetive judgment of the village adres. It is diffiult for the loan offiers to know the situation of the villages truly, so the village adres play a deisive role in the proess of the user s evaluation. Moreover, it is hard to avoid orrupt praties, suh as bribery and so on, from whih the village adres reap the profits easily. And these loan farmers may an not repay the loan and interest to lead to the great inreasing of the loan risk. 4. THE DIVERSIFIATION OUNTERMEASURES OF SUSTAINABLE DEVELOPMENT OF RURAL REDIT OOPERATIVE 4.1 The Innovation of Operational Mehanism About the Rural redit ooperative On the one hand, we an optimize the struture of reserve assets. The rural redit ooperative an determine the mutual ratio of the various assets. When we aelerate the veloity of loans and math up the length of maturity reasonably, it also an strengthen the property diversifiation; fous on effiiently using the stok, and ompress non-performing loans. On the other hand, we make great efforts to grasp the redit information of the high quality ustomer, the researh of produt marketing and the industrial prospets survey by using sientifi methods and means. And we should lassify the prospetive borrower sientifially in the ontext of inreasing our own management benefit and ustomer affordability. In addition, we need to hange the mode of operation and adjust the business strategy. In the proess of adhering to the agriulture, rural areas and farmers servie, the rural redit ooperative needs to ombine with the atual and ahieve the three transformations on operating management as soon as possible. Firstly we should pay attention the transformation from supporting quantitative mode to supporting sale effiieny. Seondly we should hange the simple struture of assets and liabilities to diversifiation. Thirdly we should shift the deentralized funds and extensive management to entralized funds and intensive farming. 4.2 Establishing the Effetive Risk Pre-warning Mehanism Fousing on strengthening the risk management, preventing and ontrolling the redit risk at the ore, we should build the omprehensive risk management prewarning mehanism aelerated, whih inludes the operating risk reognition and identifiation system, operational risk monitoring system, operational risk disposal system and so on, to sientifially and effetively strengthen the risk management. Suh as the regular business analysis, risk assessment, regular physial ount, all kinds of vouhers, aount books, aount heking, post-supervision of the business. One it disovers that the risk reahes the warning line, it an send out the early warning timely, thus it brings the liquidity risk management into the orbit of siene, normalization, programming, and gradually forms the liquidity risk management. Otherwise, we should build the emergeny response plan of liquidity risk in order to start the plan timely for the possibly ourred liquidity risk, and try our best to ontrol the risk in the smallest range. 4.3 Renovating the Rural redit Environment and Strengthening the Loan redit Guarantee It is the responsibility of government to enhane the onstrution of the rural redit environment, ultivate the farmers redit onsiousness, improve the farmers redit onept and hange the farmers negative opinions for rural redit ooperative. On the one hand, we should make full use of the redit management of the new development of the people s bank for referene, input the redit information of the farmers to redit referene system, introdue various rules and regulations, establish and improve the reward and punishment mehanism. On the other hand, in order to root the onept of repaying loans honestly in the heart of people deeply, we need to atively arry out the publiity and eduation of the poliy, whih requires the finanial department, legal department, government departments to work together, and train the farmers redit onsiousness step by step. REFERENES Jiao, J. P., & Yang, J. (2006), Miro-redit and rural finane (pp. 43-46). Peking: hinese Finane Press. Li, S. (2005). Finanial repression and anellation of rural eonomi development (pp. 69-76). Peking: Intelletual Property Press. Peng,. N. (2007). The related issues of rural mirofinane ompany and legal onsideration. Journal of Mianyang Normal University (Philosophy and Soial Edition), (4), 34-37. The Bank of hina Xining Sub-branh. (2007). The detailed rules for the implementation of the bank of hina Xining enter sub-branh hina to the loans management of the rural redit ooperative. Yu, G. Y. (2008). The view on the risk of rural mirofinane and its ountermeasure. Market Weekly, (1), 76-78. Zhang, L. Z. (2006). The ooperative studies of rural folk finanial. The Problem of Agriultural Eonomy, (04), 10-14. 47 opyright anadian Researh & Development enter of Sienes and ultures