Comparative Study On The Mechanism And Effects Of The Mutual Funds And Subsidized Loan On Poverty Alleviation

The situation of poverty reduction is still very severe in China.Chinese government needs to change the implementation of poverty alleviation projects to help more poor people out of poverty,financial poverty alleviation has become an important part of the national poverty alleviation strategy.The policies and measures of financial poverty alleviation have made some achievements,but some problems were exposed in the development of credit poverty alleviation.In the poverty area,the biggest beneficiaries of subsidized loan have been flowing into non poor households,local enterprises or development projects and low-to-middle persons and low-income persons are still facing credit constraints.This situation has severely restricted the effect of financial poverty alleviation.Therefore,scholars become to doubt the value and effectiveness of subsidized loan project.Some scholars believe that the objective of subsidized loan deviate considerably from the target population and there isn’t much practical significance for it to alleviate the poverty of specific target groups.And scholars with these opinions even proposed to abolish subsidized loan.How to develop a more scientific strategy for poverty reduction in this context?How to play a more effective role in the poverty alleviation process?These become the key and difficult problem that needs to be solved urgently.Given that poor farmers have long been subject to formal credit constraints,the Ministry of Finance jointly Poverty Alleviation Office of the State Council began to implement the rural poverty reduction strategy named" The Mutual Aid Fund in Poor Villiage"(called the mutual fund)in 2006.The mutual fund derives from the mode of microfinance in Bangladesh and try to alleviate the shortage of funds for the production and development of poor villages and poor farmers by providing a small amount of property loans to farmers through the form of mutual aid and cooperation.As a credit poverty alleviation project,the mutual fund are designed to improve the ability of poor farmers and achieve the goal of poverty alleviation.As a new method of poverty reduction,this article wondered if the operation of the mutual fund can achieve the original intention of the policy.Is it possible to ease the credit rationing of poor farmers and improve the income and development ability of farmers?If so,what are the mechanisms and conditions of mutual funds for poverty reduction?If not,what kind of adjustments the government should make?These questions not only help to better identify and target poverty,but also have important significance to the formulation of the current policy of poverty alleviation.In order to solve the above problems,this paper takes Ningxia province as an example and makes a more comprehensive and detailed investigation on mutual funds and subsidized loan.Combined with the anti-poverty reduction theory,financial theory and cooperative finance theory,this article theoretically analysized poverty reduction mechanism of mutual funds by compared with subsidized loan.And the effect of poverty reduction was comprehensively evaluated by using the micro survey data of Ningxia’s mutual funds and subsidized loan.This paper is divided into 8 parts and the main contents and conclusions of this study are as follows.Part 1:Theoretical analysis of the mechanism of the mutual funds and the subsidized loan for poverty alleviationFirstly,this chapter theoretically analyzed the commercial finance failure and the target of poverty reduction of subsidized loan is offset.They can not solve the credit constraints of farmers in poor areas,especially poor farmers.Secondly,mutual funds can use the advantages of cooperative financial system and the concept of cooperative anti-poverty to achieve poverty reduction.Thirdly,this article firstly analyzed the different impact on poverty index of income changes between mutual funds and poverty alleviation loans,which have otherness for the different income level of farmers because of their various targets.Fourthly,analysis of poverty alleviation project should change from the preference of farmers,to improve the effect of poverty alleviation projects,through external intervention of farmers mutual funds,investment funds provide farmers with production,making funding farmers get rid of the poverty trap.Part 2:Empirical verification of poverty targeting of the mutual funds and the subsidised loansFirst of all,through the description analysis,compared with subsidised loans,the mutual funds cover more poor people.Secondly,Taking 492 farmers in the villages of the 11 counties in Ningxia as samples,using a two-phase Heckman selection model,the study found that the mutual funds are more effective than traditional anti-poverty loans,which extend to poorer farmers.the mutual funds are mainly responsible for group concentrated in low and middle income groups of farmers.Mutual funds coverage failed to fully cover the poorest people,this is due to the "iron law" financial poverty alleviation.Financial poverty alleviation for repayment,for those who lack the poorest farmers for the development of production capacity,should be determined by the financial aid.Part 3:The effect of the mutual funds on Farmers’ production investment and incomeFirstly,based on the survey data of 37 poor villages in 13 counties of 655 households in Ningxia,this chapter assessed the impact of mutual funds on peasant household investment in agricultural production and income by PSM model to overcome the problem of farmers’ participation behavior sample selection and errors within the system.Secondly,based on the micro survey of 492 farmers in the pilot village,this chapter analyzed the production and investment effects of the poor and the non-poor by using the weighted least squares method.The mutual funds increase farmers’ production investment and farmers’income.the effect of mutual fund loans on the agricultural investment of poor farmers is more significant and the marginal effect of poor farmers’ agricultural investment is nearly 3 times that of the marginal effect of non-poor farmers.Finally,by using the case analysis,this chapter analyzed the reason of success of the mutual fund in Yanchi and Tongxin of Ningxia.The pattern which combined the mutual funds and local characteristics of the agricultural industry together,changed the traditional mode to the self-sufficiency model and truly achieved sustainability of the financial aid and suited to local conditions.Part 4:Dynamic poverty reduction effect of the mutual funds and the subsidised loansBased on the survey data of per capita income and income group of rural residents from Ningxia rural economic survey yearbook and yearbook of Ningxia,this article measured the degree of poor rural families by using Povcal software provided by World Bank data.Combination of mutual funds and poverty alleviation loans data,this article established the vector autoregressive model(VAR)and compared the dynamic effect of poverty reduction between the subsidised loans and the mutual funds.By impulse response figure found that mutual funds in the lag issue on the incidence of poverty,the depth of poverty and the intensity of poverty have a negative impact,and subsidised loans for poverty alleviation in lag issue has positive influence,but both not significant under 5%significance level,and from long-term basic have no effect.Finally,the further combination of Ningxia region,municipal level of mutual funds and subsidised loans for poverty alleviation data,build the panel VAR model,impulse response analysis proves the results again.In summary,compared to subsidized loans,this article considered that the mutual funds has certain effect in short term.The mutual funds have achieved certain poverty reduction targets in the short term.However,the mutual funds and subsidized loans were not significant effect in long term.Based on the above conclusions,the mutual funds has a significant effect of poverty reduction in the short term,in the case of limited funding for poverty alleviation,the government should improve the mutual funds further.This paper puts forward the following Suggestions:Firstly,standardize the operation of the mutual funds,improve the accuracy of its poor target.Secondly,the government should further integrate poverty alleviation funds,expand the source of funds,and give full play to the leverage and amplification of financial aid to the financial sector.Thirdly,encourage mutual funds innovative financial services platform,to provide more diversified financial services to meet the financial needs of the poor in the different stage.In addition,the government should fully consider the demand characteristics of the poor peasant households.As well as providing the necessary financial support,it will also be timely to export to these groups including entrepreneurship skills,agricultural technology,production materials,meteorological services and so on.In the end,we will raise the level of production and technology of farmers and realize the growing rich.