The Longwan Rural Cooperative Bank in Wenzhou has 4639 shareholders, of whom 4000 are farmers. The bank was established in June 2005 and has made loans of 4 billion yuan(US$584.5 million), with 60 percent invested in rural areas. The bank has also made a profit of 112 million yuan (US$16.4 million). Investment in rural cooperative banks has now become one of the hottest investments in Wenzhou.

90% of investors are farmers

Several Wenzhou rural credit cooperatives, such as Longwan, Lucheng, Ouhai, Leqing, Rui'an have recently converted themselves into rural cooperative banks.

Why are so many people investing in rural cooperative banks? Li Xinhong, chief of the Longshui branch of the Longwan Rural Cooperative Bank, said that the Longwan Rural Cooperative Bank issued its public share offering at the value of 1 yuan (15 cents) per share in June 2004. Longwan villagers were very keen to take up the share offering, so the bank raised more money than had been anticipated.

Since its public offering, the bank has been run very efficiently. Xia Liyun, one of the bank's directors, revealed that shareholders received 15 percent dividends over three successive years – 2004, 2005 and 2006.

Xia further remarked that high dividends depend on effective operation. Currently the bank has opened 16 branches and 32 business outlets within the Longwan District. Longwan Rural Cooperative Bank has brought in 5.6 billion yuan (US$818.2 million) in deposits and has issued 4 billion yuan(US$584.5 million) of loans.

Unsecured loans for credit farmers

The bank's profit mainly comes from small loans to farmers. Creditworthy farmers may obtain unsecured loans.

Li Xinhong said that it is very important to develop the farmers' credit. If 90 percent of the farmers in a village make their repayments in time, the village will be adjudged creditworthy. And farmers who always repay their loans in time are deemed creditworthy farmers.

The Longshui branch of Longwan Rural Cooperative Bank has recognized 4 creditworthy villages and 340 creditworthy farmers. Its loans to creditworthy farmers account for 20 percent of total loans.

Creditworthy farmers also enjoy lower loan rates, and so far Longshui branch's loans to creditworthy villages have all been repaid on time.

The rural cooperative banks also earn revenues from loans to leading local businesses. Longwan Rural Cooperative Bank also helps private businesses to manage wages, and thousands of farmers to pay their water and electricity fees. The bank also provides operational loans and mortgage loans to local residents.

Li further added that Longshui branch attracts 200 million yuan(US$29.2 million) of savings deposits each year, of which 100 million yuan(US$14.6 million) come from individual farmers.

Low rate of bad debts

Longshui Branch attracted 257 million yuan((US$37.1 million)  of savings and issued 196 million yuan(US$28.6 million)  of loans in 2007. It has only 130,000 yuan(US$18994) in non-performing loans, accounting for less than one tenth of one percent of its total loans.

Why is the non-performing loan ratio so low? According to Wang Shaohe, director of the Haibing branch of Longwan Rural Cooperative Bank, it is due to the importance of reputation, to Wenzhou's abundant private funds, and to Wenzhou's favorable credit environment. In Wenzhou, connections play a vital role in business, with the result that one's reputation is very important. Someone who loses his reputation for creditworthiness will find himself isolated. Constrained by this social environment, people dare not to fail to repay their loans.

(China.org.cn by Zhang Ming'ai, October 31, 2008)