Chinese farmers gain new access to bank loans

Beijing - More than 150 rural households in Liaoning Province have secured a collective bank loan using their farmland as collateral, setting a precedent which could see more poor rural families get access to bank loans, state media reported Sunday.

Under Chinese law, farmland belongs to a collective, and the country's farmers work their land based on 30-year contracts.

While they recently won the right to transfer their land rights, it's still illegal for farmers to use this land as collateral for loans from financial institutions.

However, the official Xinhua agency reported that 151 households in Faku county, Liaoning Province signed off on a loan of 300,000 yuan (44,000 dollars) on Thursday, using their right to farm on 60 hectares of land as collateral.

The deal, endorsed by the People's Bank of China, the country's central bank, and the China Banking Regulatory Commission, is part of a pilot project aimed at promoting new rural financial services.

The loan is a positive sign for the country's 750 million rural dwellers, who are often unable to secure bank loans because they have few assets.

Li Ping, the Beijing representative for the US-based Rural Development Institute, told the South China Morning Post that it could be a massive boost to the rural economy.

If 93.3 million hectares of farmland nationwide could be used as collateral for bank loans, rural families could enjoy up to a trillion yuan worth of loans, he told the paper.

In the wake of the financial crisis, the Chinese government is trying to boost domestic consumption by tapping into the country's massive rural market.

But it's not clear what measures will be put in place to ensure that farmers are able to meet loan repayments, or whether their land will be protected in the case of defaulting on a loan.

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