Innovative finance assists expansion of farming operation

Reporters: Huang Shan and Chen Ziqi

When it comes to the farming business a large number agriculturalists tend to share similar experiences and encounter common problems. 

In China, that common problem is facing financial difficulties when planning to expand their farming operations. This is primarily due to red tape by banks that disqualify farmers from borrowing large sums of money. 

To solve this conundrum, some local governments and financial institutions have been working together to implement a preferential policy. 

Natural scene in the area of Binchuan county of Yunnan province. [Photo: from China Plus]

Li Xinmin is a proud farmer, who is looking at his orchard, and can hardly believe how well he has been doing lately.

His farm is located in Binchuan county of Yunan province. He is pleased and relieved that finally his citrus trees have produced an abundance of fruits full color. The time surrounding New Year's Day, is the most exciting period because that is when the citrus fruits are ready to be picked. Li Xinmin knows he will have a good harvest soon.

Ripe citruses in Li Xinmin’s orchard that are ready to be picked. [Photo: from China Plus]

“It is estimated that I will get more than 100,000 kilograms of citruses and another 100,000 kilograms of pomegranates this year, so I probably will earn about 600,000 to 700,000 yuan in profit from selling the citruses and over 900,000 yuan from pomegranates,” Li said. 

Even though Li has been receiving bountiful harvests in recent times, he still often looks back at the many challenges he has had to overcome in the past to reach this point. 

Like how he made a gamble leaving a fulltime stable job in the transportation industry in hopes of becoming a farmer, even though he clearly knew that switching into agriculture would require him to invest a large sum of money, which he didn't have. 

So he withdrew all his life savings and borrowed as much money as he could, making an initial investment of over 2 million yuan. An amount he used for leasing land, buying essential equipment, seeds, fertilizers and labor costs.

12 years ago when Li began his farming dream, the most crucial undertaking was to obtain sufficient water for irrigation on a daily basis. His farm Located in a mountainous area, the nearest well was way distant from his orchard. Hence, he dug a canal to divert water from a pond that was 2 kilometers away from his grove. 

Today he manages 4 hectares of citrus orchard. Fellow farmers in neighboring villages often invite him to share his experiences in growing fruits.

A couple of years ago, he gradually developed an idea that it was time to enlarge his farming operation by growing pomegranates in another orchard. To put this plan into action, Li needed money to lease a piece of land from the local government.

Unfortunately, he did not have enough savings although he still qualified to apply for a small loan from a local bank, but that amount would still be far below the amount he needed.

Farmers in Binchuan are cleaning grapes by cutting of rotten leaves. [Photo: from China Plus]

Li's story is a typical example that represents many farmers who have encountered the same problem. Farmers in China do not own their agricultural land; they only rent it from the local government for up to 30 years. After the tenancy term expires, they need to apply for a new lease contract otherwise the right of using the land for agricultural purpose will be given to other farmers. 

Hence, agricultural land does not belong to individual farmers. As a result they cannot apply for large loans using the piece of land as a guarantee.

Yang Yinghong is the head of Binchuan county. He admits that this previously was the unfortunate scenario that frequently occurred among the farming community. 

Yang Yinghong further explained: "The majority of villagers here make a living from farming, especially before 2013. Back then, plenty of farmers wanted to expand their operations. However, all they had was fruit orchard, but it was not considered as a personal property, so they were not qualified to receive any financial assistance from banks. Consequently, these farmers were trapped in that situation."

Fudian Bank is a local bank in Yunan province. It established its first branch in Binchuan County in 2012. Du Xun is the president of the Binchuan branch. He echoes the core controversy of this problem: "Small loans provide up to 50,000 yuan. It is clearly not enough for farmers to contract an orchard. Hence, we did a lot of research and had discussions about how to help farmers provide a guarantee based on what they have."

In order to expand farming operations, farmers are able to use Certificate of Orchard Operation issued by the Binchuan’s government to apply for a large sums from Fudian Bank. [Photo: From China Plus]

After a series of investigations and interviews with farmers, the local government and the Fudian Bank worked together to negotiate a solution in 2013. The solution stipulated that the government would issue a certificate to verify the farmer is operating at least one orchard. 

The certificate would highlight crucial information, including what fruits the applicant is growing and the scale of operation. Accordingly, the bank would use this certificate as a key document to evaluate how much should be approved for the applicant.

This was the first ever case in China that farmers are able to apply for loans by using a certificate issued by government.

Since then, Fudian Bank has launched a new financial product service called the Golden Fruit Loan, aiming to aid the struggling farmers. This type of Loan has in fact become very popular in this community. Each applicant is able to apply for approximately 28,000 yuan loan per hectare of land, and the maxim amount is up to 3 million.

Li Xinmin successfully applied for 600,000 yuan by using his certificate of orchard operation. Then he used this money for leasing another 3 hectares of lands to grow pomegranates. He is very grateful and he said if it weren't for this type of loan he probably wouldn't have been able to make his plan feasible.

“The Golden Fruit Loan has been very helpful and the interest is equally friendly,” Li said, “Once a bank officer comes to inspect our orchard and ticks out the checks and balances of the certificate, and the bank immediately transfers the loan to our account.”

Dai Jinlu is another beneficiary of this preferential policy. He is working in his orchard. [Photo: from China Plus]

Dai Jinlu is another beneficiary of this preferential policy in Binchuan county. He says the money he got from the Golden Fruit Loan has been adequate to expand his operation.

Dai Jinlu explained: “I have 8 hectares of orchard, so theoretically I am allowed to borrow about 2.3 million yuan from the bank. In fact, I only borrowed 1.4 million yuan, and it was sufficient for building greenhouses and other operating expenses.”

By the end of 2017, roughly 7000 farmers from Binchuan have used the certificate of orchard operation as a guarantee to obtain financial aid. Accumulatively 880 million yuan has already been loaned from the Fudian Bank. Currently, the agricultural scales in this region have considerably been expanded to 12,000 hectares, compared with only 2000 hectares in 2013. 

Until now, more than 2000 families in Binchuan have successfully removed themselves from poverty under the support of this preferential policy.