Zhong Xinwen (middle) signs a loan agreement with the bonding cooperative in Wuping county, Fujian province. [Photo provided to China Daily]

Credit guarantees

Zhong is one of nearly 300 farmers the cooperative has helped to obtain loans. It was established as a result of a guideline issued by the county government in 2015 that was aimed at encouraging bonding cooperatives to be set up in rural areas.

Under the guideline, the Wuping government gives cooperatives 10,000 yuan to cover operating expenses, and the equivalent of 1 to 2 percent of the value of each loan as future funding. The move resulted in the cooperative being set up in Zhong's village as a pilot project. It is the only one in Wuping, although about 10 more have been established in other parts of the province.

Using 2 million yuan provided by 22 villagers as security, the cooperative has helped more than 280 farmers obtain bank loans totaling about 40 million yuan, according to Li Dexiong, the cooperative's director general. The security fund has now grown to 6.5 million yuan, and the 22 backers are entitled to a share of the cooperative's profits, depending on their contribution to the fund.

As part of a policy to encourage the development of forestry-related businesses, the government also covers 3 percent of any loan that has an annual interest rate of 5 percent or higher, according to Li.

Credit guarantees for loan applicants require the approval of a panel composed of five members of the cooperative, who communicate via WeChat. That means there is no need for them to hold meetings, and all information related to applicants is distributed and discussed via a private WeChat message group.

China employs a quota system for tree felling. Under the system, farmers can cut down some of their trees 10 years after they have been planted, but a person's entire allocation can only be felled 26 years after planting, which means it takes a long time for the farmers to profit.

In light of this time lag, the county government has explored ways to help rural residents to obtain bank loans by using their forestry assets as collateral, allowing them to start businesses related to the forestry industry and provide incomes to tide them over until the time they can begin logging operations.

Chen Jianmin, director of the Wuping forestry ownership service center, said his department suggested that the cooperative should be set up and operated by farmers because the residents know their neighbors' credit records and the value of their assets.

The model means applicants avoid a number of complicated procedures, including forestry evaluation and credit checks, and shortens the time between applying for a loan and receiving the funds from about 20 days to about three.

The greater convenience provided by the cooperative in Yuanding has attracted clients from other villages.

Last year, Chi Liangchang from nearby Xianxi village, secured a loan of 200,000 yuan via the cooperative. He used the money to plant more trees, buy fertilizer for his 7 hectares of woodland and expand a factory he owns that produces wooden furniture.

The 45-year-old farmer said he was discouraged by the complicated application procedures used by banks, so he opted to apply for a loan via the cooperative.

"They helped to prepare the paperwork. I didn't have to do much more than sign the documents. I received the money three days after applying," he said, adding that the extra funds helped to raise his income by more than 100,000 yuan a year.

The cooperative has also aided the development of Yuanding's plant nursery, which has expanded to 140 hectares from about 87 hectares in 2015, according to the county government.

Li, the director general, said there have been no defaults, and even though two farmers who borrowed money subsequently died, their families repaid the loans and interest on schedule.

He added that the cooperative charges the farmers 240 yuan for every 10,000 yuan of funds received. So far, the 22 villagers who provided the security fund have not received dividends because profits are minimal once operating costs have been deducted. Moreover, without official approval for the financing plan, the five members of the panel shoulder all the risks, and they are so concerned about possible problems that they are reluctant to expand its scale and increase profits.