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Microfinance and Financial Poverty Reduction

Microfinance and Financial Poverty Reduction

Cover and Title Page Catalogue and Summary Main Body

Title : Microfinance and Financial Poverty Reduction

Commencement Date : Mon Jan 01 1996--

Implementing Agencies : Luonan County Poverty Alleviation and Development Office

Support Organizations : Luonan county government

Actuator : Luonan County Poverty Alleviation and Development Office

Members of The : Luonan County Credit Union

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CASE PROVIDER :

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Catalogue and Index :

Abstract Summary :

Since reform and opening up, China has vigorously promoted poverty alleviation and development, successively introduced a series of guidance documents such as the "Seven-year Priority Poverty Alleviation Program (1994-2000)", “China Rural Poverty Alleviation and Development Program (2001-2010)” and “China Rural Poverty Alleviation and Development Program (2011-2020)”, and developed industrial poverty alleviation and financial poverty alleviation policies. Luonan County of Shaanxi Province is a key county for national poverty alleviation and development and the microfinance policy for rural households is known as "Luonan Microfinance Mode": Targeting at the poor, poverty-relief funds are directly issued to the poor households, and petty credit loans are issued without pledge or guaranty. Women are the main targets of the microfinance program, village teams jointly provided guarantee for the loans, and the loans can be repaid in installments. Meanwhile, the county actively explored financial poverty reduction policies, introduced commercial financial institutions and guided private capital to promote poverty reduction through legal utilization of financial instruments, creating new areas for poverty reduction in Luonan County and achieving a benign complementation between financial capital and government-led poverty reduction. Loans to households and lending in lump sum but repaying in installments effectively guarantee the use and recovery of funds. With the implementation of financial poverty reduction and microfinance policy, the "Luonan Mode" created a good situation of poverty alleviation and development characterized by lending to households and financial services for villages. With the implementation of the microfinance policy, the rural poor of the county was reduced significantly, boosting the economic development of local area and the integrated development of urban and rural areas, creating a benign ecosystem jointly set up by the government, Farmers, financial agencies and market. Thus, "Luonan mode" is known as one of the most effective patterns for household poverty reduction in China. In particular, the principle of lending in lump sum and repaying in installments has an important promotion value for our poverty alleviation and development work and is of great reference significance to global poverty reduction as well.
Since reform and opening up, China has vigorously promoted poverty alleviation and development, successively introduced a series of guidance documents such as the "Seven-year Priority Poverty Alleviation Program (1994-2000)", “China Rural Poverty Alleviation and Development Program (2001-2010)” and “China Rural Poverty Alleviation and Development Program (2011-2020)”, and developed industrial poverty alleviation and financial poverty alleviation policies. Luonan County of Shaanxi Province is a key county for national poverty alleviation and development and the microfinance policy for rural households is known as "Luonan Microfinance Mode": Targeting at the poor, poverty-relief funds are directly issued to the poor households, and petty credit loans are issued without pledge or guaranty. Women are the main targets of the microfinance program, village teams jointly provided guarantee for the loans, and the loans can be repaid in installments. Meanwhile, the county actively explored financial poverty reduction policies, introduced commercial financial institutions and guided private capital to promote poverty reduction through legal utilization of financial instruments, creating new areas for poverty reduction in Luonan County and achieving a benign complementation between financial capital and government-led poverty reduction. Loans to households and lending in lump sum but repaying in installments effectively guarantee the use and recovery of funds. With the implementation of financial poverty reduction and microfinance policy, the "Luonan Mode" created a good situation of poverty alleviation and development characterized by lending to households and financial services for villages. With the implementation of the microfinance policy, the rural poor of the county was reduced significantly, boosting the economic development of local area and the integrated development of urban and rural areas, creating a benign ecosystem jointly set up by the government, Farmers, financial agencies and market. Thus, "Luonan mode" is known as one of the most effective patterns for household poverty reduction in China. In particular, the principle of lending in lump sum and repaying in installments has an important promotion value for our poverty alleviation and development work and is of great reference significance to global poverty reduction as well.

Introduction :

Characteristics and situation of poverty alleviation in Luonan County

The poor account for a large proportion of Luonan County's population, so the county's task of poverty alleviation and development task is arduous. Based on the local impacts of local geography, climate, humanities and transportation conditions, its poverty has mainly the following five characteristics:

First, a large poverty area, low income, living difficulty of poor rural households and the lack of basic job skills of the poor;

Second, poor geographical conditions and underdeveloped infrastructure; a large mountainous area and the masses' difficulties in travelling;

Third, frequent natural disasters lead to a high rate of poverty returning in rural areas;

Fourth, a big funding gap and backward health and education increase the difficulty in poverty reduction;

Fifth, a weak economic foundation in rural areas, slow development and difficulty in income growth.

To solve these problems, learning from the "Grameen Bank" model, in 1996, Luonan County actively explored microfinance for rural households, boldly make innovations and explored the path in line with the actual situation of local rural areas - Luonan County Poverty Alleviation and Development Office applies loans from the countys agricultural bank and directly issues the loans to poor households according to project situation, creating the new path for microfinance-based household poverty reduction and financial poverty reduction.

Based on the progress made in the anti-poverty work over the years, Luonan County’s poverty alleviation and development departments carried out field survey on local poor rural households, verified the information of each village, household and project, determined the poor households and poor people based on their income levels, entered the basic information of poor households into the system and implemented dynamic management to provide first-hand data for timely adjustment and improvement of pro-poor strategies and measures.  According to the countys statistical data in 2006, there are now a total of 101964 poor people in Luonan County, including 61973 from low-income families and 39791 from needy families whose food and clothing problems have not been resolved yet. Based on the field survey, the local poverty alleviation department gave priority to key villages in anti-poverty work. In the first half of 2006 alone, it newly built or rebuilt 63 key villages with an investment of 6.72 million yuan, transformed farmland of 1100 mu, built roads of 157 kilometers, implemented 15 drinking water projects, improved agricultural power grid of 33 kilometers, set up 11 primary schools and greatly improved the basic production and living conditions of the key villages. For 162 impoverished households scattered in the regions with harsh natural conditions, through scientific planning, it implemented relocation projects, completed the new house building for 60 households and 241 people so far, and timely issued housing subsidy of 800,000 yuan through careful inspection and file creation. To address the development problem of the poor, to improve the quality of the poor and develop and cultivate leading industries, through scientific and education film screening and experts lectures, they actively held rural practical technical trainings and organized on-site trainings for 5000 person-times in Jingcun Mingxing, Shimenqiao River, Sanyao Beisi and New Rural Construction Demonstration Zone, and held professional skills training for labor transfer for 120 junior and senior high school graduates from rural needy families. Meanwhile, they actively coordinated the agricultural bank to issue poverty-relief micro-credit loans of 10 million yuan to address the financial problem of poor households for industry development and increase microfinance support for poverty alleviation. Through holding the poverty alleviation conference of the provincial units in Luonan in 2006, the county strived for 20 poverty alleviation projects with an investment of more than 640,000 yuan and made a new breakthrough in social poverty alleviation. As a result, the countys anti-poverty work embarked on a path for scientific development.

According to Luonan county government’s documents, since 2013, Luonan County has made further innovation to the microfinance and financial poverty alleviation model. Starting with creating high-quality service brand, aiming to enhance the level of scientific development of local economy and enhance the level of services for farmers business launching, Luonan County Credit Union made innovations to the service mechanism, reformed the service mode and made a historic breakthrough in strengthening its function of serving agriculture. At the end of 2012, the balance of deposits and balance of agriculture-supporting loans were both occupied the largest proportion of the relevant business value of the local financial agencies. The county set up the "Farmer’s Loan Marketing Center," the "Individual Business Loan Marketing Center", and the "SME Loan Marketing Center", and implemented the "credit service projects for communities and villages", the "financial innovation projects to enrich farmers and support agriculture" and the "sunshine credit project", focusing on microcredit for rural households. The balance of loans amounted to 651 million yuan, the balance of individual units loans reached 215 million yuan, the balance of professional cooperatives loans was 48 million yuan and the balance of SMEs loans reached 121 million yuan. At the same time, it issued more loans for "ten key projects", including the loans supporting returned migrant workers business launching, the loans for poor students, loans for scientific development, loans for agricultural industrialization, consumer loans and the loans for facility agriculture, and the balance of loans reached 232 million yuan. It issued loans to support five characteristic industries, namely animal husbandry, mulberry, fruit, tobacco and potato industry, with loan balance of 366 million yuan; actively supported laid-off workers, migrant workers and young League members to launch business and issued loans of 135 billion yuan for them; and vigorously supported relocation, entire village advancement and other new rural construction projects with 87 million yuan of project loans. It is reported that the county will further make use of rural commercial banks and other financial institutions to increase investment in microfinance to lift more farmers out of poverty. 


Content :

Policy and governing body

Currently, Luonan County Poverty Alleviation and Development Bureau is responsible for the implementation and management of the microfinance for rural households and financial pro-poor policies. As the management body of the countys pro-poor policies, Luonan County Poverty Alleviation and Development Bureau plays a key role in implementing the guideline, policies, laws, regulations and management systems of the Central Government, Provincial Government, Municipal Government and County Government, formulating the countys pro-poor policies and regulations, and developing the countys poverty alleviation supporting policies and relevant detailed regulations on management. The bureau has now 40 employees and is equipped with 6 stocks chamber, responsible for25 township poverty alleviation and development centers business management, key village construction for poverty allevlation and development, relocation and microcredit-based poverty alleviation, social poverty alleviation, industrialization poverty alleviation and the poverty alleviation by science and technology. In Luonan County’s microfinance for poor households and financial poverty reduction policy system, various financial institutions are also the management bodies, including China Postal Savings Bank, the Agricultural Bank of China and other large state-owned commercial banks, as well as the private companies approved to engage in microfinance and financial poverty reduction such as Xinghua Microfinance Limited. Currently, the county's major state-owned commercial banks mainly deals with microfinance business in accordance with the relevant provisions of the People's Bank of China on the participation of commercial banks in microfinance business. Among them, the Agricultural Bank of China is the first large commercial bank to deal with microfinance business. With high attention of the government to financial poverty reduction and less attention to commercial banks, the commercial banks engaged in microfinance and financial poverty reduction have gradually become one of the management bodies of microfinance and financial poverty reduction and have a great impact on the countys poverty reduction work. The private microfinance companies, however, mainly serve "three rural issues" and provide financial services for poor individual units and small and micro enterprises in flexible, quick and convenient manners. The county's existing management bodies play an important role in poverty reduction. 


Appendix :

Figure 2-1 Poverty Alleviation System of Luonan County

Figure 2-2 Microfinance fund operating mode of Luonan County

Luonan County’s poverty alleviation and development policy and management contents

In recent years, Luonan County has been actively implementing the policies of micro-credit for poor households and financial poverty reduction and constantly exploring new pro-poor measures, and achieved certain results. Its main practices of microfinance for poor households are as follows:

First, adhere to the three-step strategy: First, make propagandas and carry out investigations into the poor households for their basic information; then determine the poverty reduction objects based on actual situation and announce the poverty alleviation projects; finally determine the relevant system for microcredit to poor households and improve the supervision mechanism.

Second, hold three meetings: Hold cadres meeting to unify thinking; hold poor households meeting for policy interpretation, active mobilization and effective guidance; hold the masses meeting to mobilize public supervision for transparent results.

Third, improve the poor household review mechanism: Through village teams’ recommendation and village committees screening, the township government determines the name list of poor households and ensures that each needy family will obtain assistance.

Fourth, promote the issuance of loans and determine the person responsible for loan repayment to ensure a normal recovery of loan funds; follow up the loan implementation to ensure the loan efficiency.

Fifth, implement the petty loan mechanism: Lending in lump sum & repaying in installments; joint guaranty by five households; central conference model; taking into account the purpose of microcredit  poverty alleviation, and the targets of the microcredit - rural poor households, the government implemented the policy of lending in lump sum and repaying in installments based on the actual situation of rural households, voluntary joint guaranty and mutual supervision.

Sixth, good project services: The microfinance policy does not simply mean loan issuance to rural poor households. Policy formulation and implementation departments must follow up the relevant work before, during and after the project implementation and provide relevant services for farmers.

Seventh, mobilize various resources to ensure the effective implementation of micro-credit for rural poor households: Adhere to the party and government leadership, implement the policy at the county, township, village and village team level and make propagandas to ensure the issuance of microcredit loans. 

Eighth, strengthen education of microfinance-related personnel, carry out targeted ideological education and legal education activities to ensure the effective implementation of the microfinance policy for rural poor households in accordance with law and relevant regulations.

Based on the actual situation of the county, in recent years, Luonan County has adopted a series of targeted pro-poor policies and made good use of the existing pro-poor policies to provide relevant resources so as to ensure the effective implementation of poverty alleviation and development policies in the county. Its basic measures are as follows:

First, taking the industrialization of agriculture as an important means to promote the agricultural structure adjustment and increase the income of farmers, Luonan County expanded the base area, built industrial parks, supported the development of leading enterprises, cultivated brands, strengthened infrastructure, boosted industrial development, continued to promote agricultural development and the sustained income growth of farmers, stepped up the development of rural economy, implemented the business mode of rural households + cooperatives across the county, and gave full play to the cooperatives advantage of group cooperation to concentrate scattered farmers so that the farmers changed from disadvantaged groups to the advantaged groups with the right to speak in the market, aiming to lift more poor households out of poverty.

Secondly, Luonan County government started to cultivate new business entities. Adhering to the principle of "guidance, encouragement, support and services", the county accelerated land transfer, cultivated large professional households, family farms, professional cooperatives and leading enterprises to promote agricultural transformation and upgrading. It planned to launch the breeding of 500,000 ecological pigs and the photovoltaic agriculture park project of Dongjiang Company by the end of July 2014, promote the construction of the North Bay municipal modern agricultural park, and set up the Huayang Provincial Agricultural Park and Huayuan edible mushroom park. Phase II project of walnut processing was completed and put into production at the end of August. The Bureau of Agriculture and Bureau of Forestry are responsible for raw material supply for Chenghua, Tianyu and Jiuzhou Company. Meanwhile, the county strived to support the development of four municipal agricultural leading enterprises, namely Changsheng, Xinkang, Yonghao and Taian, guided 68 demonstration cooperatives to improve the production management level, strived to create two national demonstration communities, three provincial demonstration communities and five municipal model communities, and newly developed 968 family farms. Giving full play to the role of the county vocational middle school, the county science and technology education center for farmers, the township cultural and technical school and the township farmers remote education center, it strengthened the training of new types of professional farmers, focusing on the cultivation of capable persons for production, operation and management urgently needed by new agricultural businesses.

Finally, in order to achieve the poverty reduction goals, the county strengthened infrastructure construction. It planned to address the drinking water problems of 6500 people in remote mountain areas and 40,000 people in immigrants communities, completed the dyke building at the upper reaches of the river of key county for farmland construction and the reinforcement of four reservoirs in Tongshugou, etc.; promoted the land consolidation and reclamation in an orderly manner, implemented the project with changes linked, increased arable land area of 1520 mu, and the Shigao Road and Tianhou Road would be put into operation at the end of October 2014 after reconstruction.