By Zhang Lu

The opening of two new rural financial institutions yesterday gives hope to the large number of low-income Chinese farmers and small rural businesses that they will enjoy wider access to bank loans.

China has long been struggling to channel lending to its vast rural areas, still not adequately served by the existing financial system. Villages are home to less than one-sixth of all bank branches, accounting for 15 percent of the country's deposits and loans in 2006.

Cities get 10 times more loans per person than the countryside, where over 60 percent of the 1.3 billion population live. And, only 60 percent of the 120 million rural households that need bank loans are able to access them.

The new policy unveiled in December, which introduced new types of rural financial institutions like the village bank and the lending company opened yesterday in Sichuan and three others to be opened soon, is expected to breathe life into the rural financial sector.

The pilot scheme planned in six provinces and autonomous regions Hubei, Jilin, Sichuan, Qinghai, Gansu and Inner Mongolia encourages individuals, private companies and all financial institutions to get involved in rural financing.

New rural financial institutions are supposed to bring competition to the market, supporting the building of "a new socialist countryside" along with other financial institutions serving villages.

But to really arouse the interest of commercial financial institutions and private investors, the government needs to offer more preferential policies instead of just easing the market entry restrictions.

It is profits that will drive businesses to rural areas, and it is generally held that these won't come easy in rural areas, with high operation costs and bigger management risks.

(China Daily March 2, 2007)