The first rural credit union opens in Wenzhou, Zhejiang province, in March 2011. (File photo/Xinhua)
China's mutual aid credit cooperatives for private farmers, dubbed copycat banks by regular banks, have been experiencing difficulty in recovering the money they have lent, forcing some of them to halt their operations, the Chinese-language weekly Economic Observer reports.
"Currently, we only receive deposits and do not lend loans," a staffer at such a credit cooperative in Yancheng in Jiangsu province told the newspaper on Dec. 27.
The city of Yancheng is home to 160 such credit cooperatives, while the province has a total of about 400 such organizations.
In Jiangsu, the total capital base for registered farmers' mutual aid credit cooperatives has touched 1 billion yuan (US$160 million). They had absorbed more than 5 billion yuan (US$800 million) in mutual aid funds and lent about 5 billion yuan, a source close to the government's audit agency said.
An ordinary mutual aid credit cooperative for private farmers usually maintains more than 10 million yuan (US$1.6 million) in mutual aid funds, with some even maintaining more than 50 million yuan (US$8 million), the source said.
Although their titles are similar to the three new types of rural financial institutions, the goal of such copycat banks is different from these institutions. Though they effectively meet demand from farmers and rural residents for small amounts of short-term capital, such institutions also expose inherent problems such as legitimacy and supervision, as well as the risk of insufficient liquidity.
Due to capital disruption, several farmers' mutual aid credit cooperatives in the provincial port city of Lianyungang have suspended operations.
Meanwhile, the operations of farmers' mutual aid credit cooperatives in Yancheng have expanded to cover more than 100,000 people, the report said. Some cooperatives absorb mutual aid funds at an interest rate ranging between 7%-10% on deposits and 15%-18% on loans. A local official told Guangzhou's 21st Century Business Herald that local governments were quite concerned about the social problems stemming from copycat banks.
In addition, some cooperatives have injected enormous capital into investments through bank accounts held by their directors or accountants, posing a risk to their normal operations.
The establishment of such institutions is supposed to support the local economy and should be approved and supervised by financial and banking regulators, an expert suggested, adding that they should also set up a system for loan releases and an appropriate accounting system.