Studies On Cooperative Finance Institutions

After more than thirty year's opening and reform, China's economy has gained a great progress,while,at the same time,the rural economy improveed slowly. In the year of 2002,Li Changping,a then county Party secretary, summarized the problem of rural economy as "the peasants are really hard, the rural areas are really poor,the agriculture is really dangerous." According to the National Bureau of Statistics, the income gap between urban and rural residents has continued to widen:in 2008, urban-rural income gap has reached 3.33:1, from the absolute point of view are more than 10,000 yuan.In 2007, the Party Central Committee Document No.1 document commended that " If the agriculture gain a good harvest,then the basis of nation is strong, if peasants are rich, then the country is prosperous, if the rural areas keep stable then the society is peace. Strengthen 'the agriculture,the rural areas and the peasants'work, actively developing modern agriculture and promoting the socialist new countryside construction is a necessary requirement to comprehensively implement the scientific development concept and building a socialist harmonious society, it is also an important task to speed up the socialist modernization drive. " Finance, as one of the most important institutional arrangements in economic development, has played a vital role in the mobilization of money capital, the allocation of savings, guiding investment,the risk diversification, lower transaction costs, as well as tools to support innovation and technological advancement. It has become the consensus of all walks of life that developing rural finance to ensure an adequate supply of capital to meet the agriculture, rural areas and farmer's financial needs, thereby supporting the economic and social development of various undertakings in rural areas.In history of studying the problem of rural economy and rural finance,there are many viewpoints from different angels.For example, first,Development economists, such as Lewis and others, proposed the "theory of industrialization drive." The main point of this school is that in order to promote the development of backward sectors (ie agriculture) development, The nation can develop advanced sectors (ie industry)at first. Second,the angle of the theory of financial intermediation. In the neo-classical economics, there are two opposite views of financial intermediation. One is the currency-neutral theory, this theory thinks that the number of currency can not affect the economy; the other is the early theories of financial development which argue that finance can promote the development of economy. For example,the early "credit creation" theory is the description of the relationship of commercial banks and economic development. In line with this idea, later scholars have extensively discussed the relations between financial development and economic growth. The theory of Subsidies to agricultural credit, the rural financial market theory and the imperfect competition theory are the reflection of the financial intermediation theory in a concrete rural financial sector.With Goldsmith's "financial structure" concept, some scholars started to discuss which one,the bank-dominated financial structure or market-oriented financial structure, can promote economic development better. Up to now, it is still an open question. Merton and others (1995) considered that the financial function is more stable than the financial institutions, financial performance is over the organizational structure, with the function changes, the form of institutions will also change. Therefore, the functional perspective requires first examine what economic functions the financial system should exercise, and then seek one corresponding organizational structure. As a result, "financial functions view" was born.On the issue of financial development, Patrick(1966) suggested that there are two patterns:one is the Demand-following pattern in which the creation of modern financial institutions, their financial assets and liabilities, and related financial services is in response to the demand for these services by investors and savers in the real economy. The other is Supply-leading pattern in which the creation of financial institutions and the supply of their financial assets, liabilities, and related financial services are supplied in advance of demand for them.On the ground of the Supply-leading pattern, many domestic scholars call for to set up more financial institutions in rural areas to meet the financial needs there. However, it is a very pity that,they do not pay attention to this sentence in Patrick's article:"Supply-leading" has two functions:to transfer resources from traditional (non- growth) sectors to modern sectors, and to promote and stimulate an entrepreneurial response in these modern sectors. So, if we encourage different types of financial institutions to set up their branches in rural areas without distinction, there may be such a situation:the more established financial institutions in rural areas, the faster the loss of fund in rural areas. Then, which kind of financial institution is suitable for rural areas especially poor areas?I believe that Cooperative Finance Institutions can solve this problem. But, in China the Rural Credit Unions,which belong to Cooperative Finance Institutions,has failed. To persuade people to accept Cooperative Finance Institutions again,this article must prove that the Cooperative Finance Organizations have their own rules.we must obey these rules.Simply saying,seven principles in Credit Unions is a delicate design of institutions. They can prevent opportunistic behavior From different aspects, so,as an economic organization, Credit Union can be sustainable financially.The thesis employs the framework of New Institutional economics to analysis the Cooperative Finance Institutions.The thesis consists of the following six parts:ChapterⅠ:A brief introduction presents the background and the significance of the study,its objects,methods,concepts,framework, and main contribution and innovation.ChapterⅡ:This chapter introduce some underlying concepts in the New Institutional economics, for example,institutions,transaction costs,contract.ChapterⅢ—Ⅴ:These three chapters are the core of this thesis.Chapter III proves that the credit unions can gain higher level of loan repayment,that is to say,they can get more incomes. ChapterⅣproves that the credit unions can reduce their operating costs.Therefore, Credit Union can be sustainable financially. However,to do this,it is necessary to mobilize the members of the Credit Unions. Therefore,Chapter V proves that the ownership of the Credit Unions belongs to the members.ChapterⅥ:This chapter does case studies.to prove the conclusions of the above three chapter.ChapterⅧ:To develop smoothly, credit unions need to gain support from governments.This chapter studies the relationship between credit unions and governments from two aspects:Financial Supervision and the financial support from Policy-based Finance. ChapterⅧ:This part summarizes the main conclusions,and provides some policy recommendations.Main contributions and innovations:First, the innovation in study objects.Most of the existing literatures see cooperative financial organization as an existed objects, on this basis, to explore the characteristics of cooperative financial organizations. This thesis focus on the micro-foundation of cooperative financial organization,that is to say,why the cooperative financial organization can exist.Second, the innovation in study angle.Most of the existing literatures studies from the rural financial demands and financial supply. However,this perspective does not help explain the division of three financial institutions. This thesis uses the contract instrument,to analysis what factors are needed for reaching a contract.therefore,we can get meaningful conclusions:in the acquaintance society, cooperative finance organization is the best financial form to meet the financial demands of poor farmers.Thirdly, the innovation in conclusion:(1)This paper argues:compared to group lending model, cooperative financial organizations can make more effective use of social capital, therefore, other conditions being equal, cooperative financial organizations to achieve higher rates of loan repayment.(2)The principles of free access and democratic management area governance mechanism for cooperative financial organizations they can help to lower transaction costs.(3)The paper emphasized the cooperative financial organization owned by members privately.(4)The Marxist studied cooperative economic organizations from a macro point of view, it did not rule out the existence of cooperative financial organizations in specific historical conditions.