Research On The Mission-drift Of China Rural Commercial Banks

The report of the 19th National Congress of the CPC pointed out that China has entered socialism with Chinese characteristics for a new era and "agriculture,countryside and peasant" is a fundamental issue concerning the national economy and the people's livelihood.Hence,we should always take the well settlement of this issue as the priority among priorities of the party.Rural finance is an important pillar of the modern rural economy,as a consequence,rural economic development needs the support of rural finance such as agricultural credit under the modern market economy.When Rural credit cooperatives changed into rural commercial banks after the reform of the shareholding system,the dual objectives of commercial sustainability and servicing "agriculture,countryside and peasant" are given consequently.However,rural commercial banks appear to be mission-shifting for maximizing their profits in the process of commercialization.It has a very adverse impact on the current development of precise poverty alleviation,"agriculture,countryside and peasant"and even the goal of building a moderately prosperous society in all respects.Therefore,it is theoretical and practical to perfect rural financial theory,to promote rural financial reform,to develop "agriculture,countryside and peasant" and to discuss the formation mechanism,influencing factors and governance measures of"mission-drifting" in depth and systematically.Firstly,this paper sorted out the theoretical basis of mission-drift systematically based on the definition of mission-drift.The theory of financial exclusion in the 1990s showed that financial institutions dislike to service poor people out of the consideration of controlling risk,reducing cost and increasing profit.And it's the most powerful explanation for "mission-drifting".The theory of inclusive finance provides a theoretical basis for preventing the mission from drifting and it promoted the dual goals coordination.Welfare theory and Institutionalism mainly debate whether dual goals are concomitant or conflicting,and they provide their own empirical evidence.These theories are the foundations of the later mechanistic analysis and empirical tests.Secondly,this paper discussed the formation mechanism of "mission-drift" based on the principal-agent analysis framework and there are two layers of principal-agent relationship.In the first layer of the relationship,the "incentive compatibility"between the government and rural commercial banks dose not exist.In the second layer of the relationship,the mismatching between risk and return is the main driving force for "mission-drift".Through the construction of the principal-agent mathematical model of rural commercial banks and government,rural commercial banks and peasants,it finds that the factor of cost plays an essential role in aiding“agriculture,countryside and peasant" with rural commercial banks.In order to further analyze the "mission-drift",this paper chose a unique perspective,the factor of cost.Thirdly,in order to test whether "mission-drift" exists in Chinese rural commercial banks,this paper proposed two hypotheses from the perspective of cost:the marginal cost of agricultural loans which is greater than non-agricultural loans is the basic motivation of "mission-shifting" under the setting loan interest rate;Compared with non-agricultural loans,the aggravating of the risk cost of rural commercial banks as a result of the increase of agricultural loans is the deep-seated reason of "mission-drift".Based on the operating data of 107 rural commercial banks in Hunan province during 2011-2015,this paper constructed Trans-log Cost Function with quartile panel data model to carry out regression analysis and robustness test for the two hypotheses.The result showed that the agricultural loan business not only has higher marginal cost,but also higher potential risk cost.For seeking profits,rural commercial banks have to curb the scale of agricultural loans,cause "mission-drift".And then,this paper constructed an influencing factor analysis framework with"mission-drift" from macro and micro perspectives.At the micro perspective,this paper chose profitability,business and asset structure,liquidity level,risk management ability and market competitiveness as indicators for analysis.At the macro perspective,this paper chose the level of economic development,government support,inclusive finance,liquidity and risk as indicators to establish a fixed-effect model with 87 rural commercial banks.The empirical result showed that the business and asset structure,risk management ability of rural commercial banks had significant impacts on the marginal cost of agricultural loans.And the higher the proportion of agriculture-related]oans in the loan balance is,the higher the marginal cost will be.The more loans were put into operation by the rural commercial banks,the fewer the marginal cost of the loan business will be.The stronger the risk management ability of rural commercial banks is,the lower the marginal cost of agriculture loans will be.In macro aspect,the income gap between urban and ruralareas,the level of financial development,liquidity also have notable effects on the marginal costs of agricultural loans.What needs to be noticed is that the effect of government financial discount on marginal cost of agricultural loans is not significant.Finally,this paper drew on the advanced experience of solving "mission-drift".At the financial institution level,it introduces the micro-finance model represented by Grameen Bank in Bangladesh,the Community Financial Model represented by American Express Bank and Rural Cooperative Finance Model represented by Credit Aqricole.The perspective of government started with three aspects:Fiscal Taxation,Monetary Policy and Financial Supervision.Through these above,we can get inspirations of solving "mission-drift":A sound organizational system is an important factor in ensuring the effectiveness of poverty alleviation;the innovation of the credit mechanism is the key to controlling costs and risks;diversification is a good starting point for improving competitiveness;comprehensive financial support is an effective guarantee for the growth of rural financial institutions;differentiated monetary policy is the favorable support for the development of rural financial institutions complete financial supervision is an important means to prevent the deviation of the mission of supporting agriculture.By contrasting Chinese actual conditions,this paper put forward some policy proposals to govern the mission drift of China's rural commercial bank from the three aspects of advocating "promising government" and market mechanism,keeping stock reform and incremental reform,and fostering the motivation of rural financial endogenous development.