| As the crucial capital collocation in economic development, rural finance plays prominent role in rural economic development. Since reform, fanner income has increasingly come from multi-source and non-agriculture industry. Monetary income has increasingly taken a larger share in fanner total income. There is a growing gap between regional rural economy development. These means that rural finance now faces a higher demand. However, at present rural financial service can抰 meet the requirement of rural economy and social development. In that sense rural financial reform is still lagging behind the changes in rural economy and industry structure. In this paper, township-level data about performance and governance of the Agricultural Bank of China branches and Rural Credit Cooperatives were collected in 27 counties from Zhejiang, Jiangsu, Shanxi and Sichuan provinces. The analysis to the data indicates as follows: 1. The performance of RFIs has worsened since 1994. Funds depend more on absorbing deposit, which adds higher costs to fund. The share of outstanding loans that are non-performing rises from 17 percent in 1994 to 23 percent in 1997. Many banks still roll over loans through vergreening?to conceal repayment problems. 2. Up to 1997, More banks turned to loan-deposit scale control instead of quota control. The authority of issuing loans of RFIs manager has been confined greatly. The percentage of loan officer declined as the total stuff increased. 3. The clients?performance of rural financial institutions has deteriorated and is even worse in less developed regions. RFIs in less developed regions tend to issue loans to households while developed areas prefer private enterprises. And these preferences strengthen over time. 4. The percentage of potential bonus to base wage has increased steadily, especially in less developed regions. The base wage level in developed regions is much higher than that in less developed regions. 5. With the transform of TVEs, RFJs meet less pressure from local government in their operation. Many regulations (especially interest controls and restrictions on interbank lending) continue to constrain the decisions of RFIs managers. In order to quantify the effect of different factors on RFIs performance, an econometric model is developed. The estimation results show: the share of clients that are normal clients, authority of loan-issuing, farmer net income per capita and terms of RFI managers have statistically significant effect on performance. The former three factors have positive effect while the fourth factor has negative effect on RFIs?performance. According to the above findings, the research made the following suggestions: Creating a liberalized outer environment 1. Encouraging financial competition by way of liberalizing financial market entry restriction, deepening the rate reform, and giving RFIs more open rate and pricing authority. 2. Open-up interbank market will make it possible for REIs managers to price strategically and redundant fund flowing to fund-lacking regions. 3. Establishing an incentive consistent system to coordinate the relationship between local government and RFIs. Government should also pay for the benefits it obtains from RF1s and compensate RFIs?cost. Improving internal governance 1. Establishing an effective incentive mechanism, w...
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