[Microcredit] Private bank helping Chinese farmers in Shanxi to escape poverty trap

from Channel News Asia

By Channel NewsAsia's China Correspondent Ca-Mie De Souza

A new report commissioned by Beijing's Rural Development Institute has found that the urban-rural income gap in China is wider than it has ever been.

Experts say one reason the poor are stuck in the poverty trap is because they cannot get access to funds.

But there is at least one private "bank" helping farmers in Shanxi province.

Pig farmer Li Pingze has been up all night - one of his sows just had a litter of 14 piglets, adding to his herd of more than 50.

He and his wife Tuodi would never have been able to own such a big farm if not for ready credit.

The micro-credit system in the village was started by an elderly philanthropist Mao Yuchen.

A local teacher and village elder have been running it for the past 13 years.

Luo Yuao, Foundation Accountant, said: "We follow the rules of helping the sick and injured, helping children go to school and then to expand production."

When the scheme first started, loans to villagers for schooling and medical needs were interest-free.

But rising costs and risk have led to interest rate hikes.

Over the past five years, farmer Li has taken five loans totalling 12,000 yuan or close to US$1,500.

He wishes he could borrow more.

Li Pingze said: "This year the interest rate has gone up so I have to try and repay a bit of it. I have to repay it all before I can borrow again."

The government has said it wants to intensify efforts for poverty alleviation and increase investments towards it.

The UN has said that micro-credit is a very effective tool for poverty reduction in China.

Professor Liu Lingling, Tsinghua University, said: "What will really help rural economies to flourish is if they can create their own funds. Rural financial services is key. If farmers can get a continuous supply of credit while they expand production, financial services become available. Farmers are credit-worthy - they won't default."

For thousands of Chinese farmers, micro-credit has proven to be crucial - the very heartbeat of rural life.