Study On Rural Co-operative Financial System From The Perspective Of Social Capital

Under the dualistic urban-rural economy structure, we have witnessed phenomena such as capital outflow from the rural regions to more developed regions, deficiency of the accessible funds and low geographical coverage of financial institutions, the combination of which has made it very challenging for rural residents to obtain their financial resources. The deficiency of the financial system in the rural regions has become the bottleneck for the growth of both rural economy and formers’ income. To try to solve this issue, extensive research has been carried out by many scholars who focus on the issues concerning agriculture, countryside and farmers. The state leaders also voiced their continuous concerns in the working papers issued by the central level of the Communist’s Party from 2004 to 2008. The rural co-operative financial system is indispensible in the rural financial system. It mainly serves the rural residents or households which are being more and more marginalized by the commercial banking. Selecting an optimized reforming route for the rural co-operative financial system will be instrumental in helping rural residents to obtain financial resources with more ease, fueling rural economy’s growth and maintaining social stability. If we look back to the history of the rural co-operative financial system’s development, the rural credit cooperatives were intended to form the main stream of the rural co-operative financial system but after twists and turns, they are in the process of being commercialized. As such, how to establish an effective rural co-operative financial system and optimize the rural financial structure has become an important topic to both scholars and practitioners in this field. This article will analyze the co-operative financial system from the perspective of social capital in hope to find out the best route of establishing an effective rural co-operative financial system.The social capital theory and the co-operative finance theory, together with the rural theory and new system economic theory are employed in this article. The perspective of social capital and social capital concepts such as "trust", "norms", and "network", empirical and normative methodologies, and inductive and deductive reasoning, are also employed in this article to analyze the efficiency of our rural co-operative financial system, demand and supply for the system, and the best route to optimizing our rural co-operative financial system.Whether there is a need to maintain a system or whether the same can sustain depends on its efficiency. Compared with others, the rural co-operative financial system has its advantage of being an important social capital element which enables the rural residents to access the financial resources. The system bridges the government funding and the needs of the farmers. Rural area’s social capital characteristics also play the role of reducing the cost of financial transactions. Therefore, the co-operative financial system is more efficient than any other financial systems to the farmers and the government which is implementing pro-agriculture policies.However, the efficiency of rural co-operative financial system can only be achieved if the system is coupled with other social capital resources in that specific rural region. The reforms taken during the period of the Republic of China and after the founding of People Republic of China could be referred to as samples where the co-operative financial system are not coupled with the social capital.Bearing in mind that it is critical to couple the rural co-operative financial system with the rural social capital to optimize the financial efficiency, the conditions for the selection of the rural co-operative financial systems have varied due to the change of social capital elements such as basis and cohesiveness of rural inter-personal relationship, integration of social network, and traditional norms and trust modes in the rural regions. This article will firstly touch on the status quo of supply and demand in the rural co-operative financial system before analyzing how to further develop the rural co-operative financial system in the background of current social capital. There have not been remarkable changes to the rural financial activities which generally involve smaller amounts, shorter tenure and urgent basis. The income level of farmers, the situation of the security/mortgage system in the rural regions and the current rural credit system have hindered the rural residents’ access to the financial assistance. Considering the costs and risks, the commercial financial institutions may turn down the financial needs of the farmers. The low efficiency of the commercial financial system in the rural areas even enhanced the needs of farmers to access the financial assistance. Therefore, the rural co-operative financial system is needed to represent the voice of the farmers. Under this system, the farmer should reposition themselves in the system and enhance their ability to access the financial recourses. From the perspective of social infrastructures, the implementation of the agriculture policies, the increased cooperative spirit of the farmers, the increased access to the non-governmental capital, and the experimentation of creative forms of cooperative finance have prepared the current system with the relevant regulatory, social, financial and practical basis.The rural co-operative financial system is needed in China’s rural areas. It is also supported by some social infrastructures. The current social capital environment in rural regions shall be studied when designing the rural co-operative financial system. The rural co-operative financial system is consolidating the non-governmental financial resources and becoming more structural and legalized due to the decrease of the trust and reliance among the rural residents, decreased enforcement of the traditional contractual arrangement, change in the basis of trust and the patterns of behavior, and the non-governmental nature of the system.The rural co-operative financial system is an effective arrangement but its effectiveness depends on the government’s functioning. The government’s main function in this respect should be to provide a conducive environment for the facilitation of the rural co-operative financial system by clarifying the ownership and rights of the rural cooperative organizations, setting up the regulatory system in this respect, providing education to enhance publicity through various programs, providing the necessary financial support and carrying out necessary supervisions and other means.Based on the analysis above, the following main conclusions could be drawn: first, from the perspective of social capital, the rural co-operative financial system is an effective regime if the rural financial system is coupled with the social capital in the rural regions; second, based on the needs of famers and the availability of the rural financial recourse, the structural imbalance in the supply and demand for financial recourses gives rise to the need for the rural co-operative financial system which at present is adequately supported by social infrastructures; thirdly, the route to an optimal rural co-operative financial system is to consolidate the non-governmental financial resources and gradually legalize the same, which shall be supported by favorable policies from the government.The innovative part of this article is to employ the social capital theory and perspective to analyze the rural co-operative financial system. Compared with the previous studies, this article offers more in-depth study on co-operative finance’s systemic advantages in the cost control of the financial transactions and effective utilization of the state resources. It also expands to analyze the choice of routes to optimize the rural co-operative financial system. Therefore, this article made improvements to previous academic studies in two ways: the first is to fill the gap of using social capital theory to study, and the second is to put forward the view how the rural cooperative financial system evolution has progressed toward being more structural and legalized. At the same time, as the social capital theory is the integration of the values and cultural factors and it can explain the economic situation and problems powerfully, which is known as the third way for settlement of social conflicts, this paper is both theoretically innovative and practically useful.