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Central Bank Suggests Rural Financial Service Improvement

China should further upgrade its rural financial service system to bolster economic development in such areas and improve the lives of farmers, said a People's Bank of China report released late on Friday.

The central bank's "China rural financial service report" suggested the government provide more low-cost financial services in rural areas, improve the credit-risk management mechanism and encourage innovation in financial products.

"Although the rural economy has developed quickly these years, financial services (in these areas) still fall far behind those in urban regions. Simpler and low-cost financial services are needed and necessary," it said.

Financial organs at all levels were suggested to provide simpler procedures in major financial services, including deposit, loan, remittance, insurance, futures and stocks, in a bid to reduce business costs and make services more easier to realize.

Efforts should also be made to lower the market-access threshold in rural financial markets. This included less restrictions on risk management supervision and a lower capital adequacy ratio standard to encourage more financial institutions and networks to enter such markets, the report said without elaborating.

By the end of 2007, China had 124,000 county-level financial institutions involving a total deposit of 9 trillion yuan (US$1.31 trillion). This accounted for 23.4 percent of the total deposit volume nationwide. However, 2,868 villages and towns were currently without financial outlets.

Local governments were suggested to provide micro-credit financial organs with a good reputation and credit record a top priority when introducing them into rural markets, the report said.

The central bank also suggested rural financial institutions remove the loan interest cap. "We encourage lenders in rural areas to increase interest rates in a proper way when extending loans to farmers and agricultural-related industries. This will make lenders more profitable, and help ensure sufficient capital supply."

By the end of 2007, the country had extended 6 trillion yuan in rural-related loans. The figure accounted for 22 percent of the nation's total loan volume.

(Xinhua News Agency September 20, 2008)

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