Targeted poverty alleviation and bank models

The People’s bank of China’s branch office in Zhumadian City, Henan Province has developed five models to promote targeted poverty alleviation through working with the banking system.

Research has found that it’s easier for the low-income group to reduce poverty once they have access to financial services. There are two channels to achieve this goal – a direct channel and an indirect channel. The direct channel provides financial services directly to the poverty-stricken population, while the indirect channel provides financial services to enterprises and industries, whose economic growth in turn benefits the poverty-stricken population. Research has found the indirect channel to be more effective.　

Model One: Bank + Government + Poor Household

In Biyang County of Zhumadian City, the Postal Savings Bank of China’s local branch office granted 271 loans amounting to 16.15 million yuan to 270 poor households. People used the loans to grow and sell mushrooms and gained fairly decent economic returns.

The local bank suggested the county government to set up a guarantee fund of 14.8 million yuan. Thanks to the bank’s financial products, cooperatives had more money to hire poor villagers, while those who wanted to become an entrepreneur also gained access to start-up capital. The villagers not only could start a business on their own but also join the cooperative and enjoy a year-end dividend of 2,000 yuan as well as their own business income. In 2016 alone, the bank granted 4 million yuan of loans to 80 poor households and 12.15 million yuan to 17 cooperatives.

In this case, the key is the guarantee fund set up by the local government. The special guarantee fund for targeted poverty alleviation has effectively reduced financial risks and service cost for financial institutions, and thoroughly inspired the participation of more social capital. Biyang County has also provided special support to those who lacked capital, skills and information by categorizing them into different groups.

Model Two: Bank + enterprise + poor household

Queshan County in Zhumadian Prefecture has lifted people out of poverty by supporting key enterprises and creating jobs.

Mushengyuan Animal Husbandry Co. Ltd is a key enterprise in Queshan County. It has actively involved poor households in the business by selling piglets to them at a very low price and even providing sows free of charge. It has taught farmers breeding and given them disease prevention technology. The enterprise also buys back the pork at a high price from the farmers. Since 2014, Mushengyuan Animal Husbandry has received 8.45 million yuan in loans, made a total profit of 10.5 million yuan, created 25 jobs, and lifted 68 households out of poverty. Farmers in Queshan County not only benefited from working with the enterprise but also received help from a number of banks, who created special tailored credit loans for them to raise animals.

In this case, the People’s Bank of China has played a leading role in guiding financial institutions to create new products specially tailored for a specific industry.

Model Three: Bank + Association + Poor household

In Runan County, the People’s Bank of China has led local financial institutions to provide discounted loans for poor households to buy large combine harvesters. So far, Runan County has bought over 7,000 combine harvesters and its annual net income was near 600 million yuan. Thanks to this model, more than 200 poor households were lifted out of poverty.

In 2014, Runan County established an association for owners of large combine harvesters in Songzhuang Village, as more and more farmers had purchased the equipment. It has allowed poor farmers who wanted to buy the machine to apply through the association and get financial help. After reviewing the applicant’s fund request, household financial condition and credit information, the association would provide a preliminary review to the rural credit cooperative and guarantee for the applicant. Led by the initiative, the cooperative has introduced a new loan which reduced the interest rate by 20%. Its close cooperation with the association has helped a number of applicants to get loans. So far, more than 30 poor farmers have purchased large combine harvesters through the association. Songzhuang Village now owns over 300 harvesters and all of its villagers have been lifted out of poverty.

In this case, financial poverty alleviation has worked hand-in-hand with local needs. Financial institutions will become more willing to grant loans once the local government has set up a loan guarantee fund. Discounted loans supported by the government will also help relieve the poor households’ financial pressure.

The People’s bank of China’s branch office in Zhumadian City, Henan Province has developed five models to promote targeted poverty alleviation through working with the banking system.

Research has found that it’s easier for the low-income group to reduce poverty once they have access to financial services. There are two channels to achieve this goal – a direct channel and an indirect channel. The direct channel provides financial services directly to the poverty-stricken population, while the indirect channel provides financial services to enterprises and industries, whose economic growth in turn benefits the poverty-stricken population. Research has found the indirect channel to be more effective.