Establishing a Framework for Sustainable Rural Finance: Demand and Supply Analysis in Guizhou Province of the People's Republic of China

This paper examines the demand for financial services from rural households in China. The paper:

• Assesses the extent to which the demands have been met;
• Identifies the purpose for which the finance supplied is being utilized by the poor;
• Identifies the constraints which come in the supply of credit demand;
• Analyzes all the issues related to policy, legal, operational environment and organizational structure of rural financial institutions.

The paper states that:

• All the issues of rural finance cannot be sorted out by bringing about reforms in the rural credit cooperatives (RCC) only, as China's economic development calls for diversified rural financial institutions and systems;
• At the heart of rural finance reform there is a need to:
  • Break the monopoly of the RCCs on the rural financial market;
  • Establish a competitive, efficient market;
  • Implement an appropriate supervisory framework regulate.

Finally, the paper makes the following set of policy recommendations for establishing a sustainable rural finance system:

• Create an enabling environment for the sustainable development of the rural credit cooperatives;
• Promulgate a community re-investment law and establish a mechanism to reduce the outflow of postal savings;
• Adopt a market-based interest rate regime;
• Separate regulation from management and implement minimum regulatory requirements.