The Analysis Of Performance Of Supporting Agriculture By Village Banks And Their Influencing Factors

China Banking Regulatory Commission loosed up the entrancepermission policies of financial institutions in banking industry inrural areas, and industrial capital and folk capital are allowed to useto set up a new bank in rural area in December , 2006. There are sixprovinces were chosen to be experimental unit, including Sichuan,Inner Mongolia etc. The change from village banks to new ruralfinancial institutions started. As a part of new rural financialinstitutions, the purpose of village banks is to support agriculture byfinancing. However, as its nature of legal organization, village bankshave to be operated commercially. However, it cannot be the onlytarget of village banks to pursue operation objective. As part of ruralfinancial institution, it is crucial to understand whether itsestablishment can resolve the difficulty of financing in rural area ornot, because it not only determines the healthy development ofvillage banks, but also the success of the financial reformation inrural area. Therefore, scholars have done a large number of analysisand studies about whether village banks can resolve the financialdifficulty of“three rural”or not and the policy functions of villagebanks. Therefore, this paper avoided general managementperformance evaluation when doing performance analysis. This paperalso evaluates the performance of supporting agriculture of village banks, and influence factors of supporting agriculture by villagebanks.This paper analyses the performance of supporting agriculture ofvillage banks by using the performance evaluation system ofsupporting agriculture by rural financial institutions. The design ofevaluation indicators are mainly from three aspects, which are thepower of supporting agriculture by village banks, the effectivenessof supporting agriculture, and covering square of supportingagriculture. According to existing researches, as a new member ofrural financial institutions, the establishment of village banks hasgood significance to rural financial market. However, it is still aproblem whether village banks has improvement of supporting toconduct agriculture business, and supporting innovation inagriculture financial products compare to traditional rural financialinstitutions since they both have the policy function of supportingagriculture. In order to solve this problem, this paper compares theperformance of supporting agriculture by village banks and ruralfinancial institutions such as credit association by using method ofcomparison, and reaches a conclusion of the relationship of villagebanks and traditional rural financial institutions and the problemand shortage of conducting supporting agriculture business. Thispaper will conduct positive analysis by using the method of multipleregression analysis and using the data of 109 existed village banksfrom 30 provinces and cities over the country. The result shows thatthe location of the village banks, length of operating time and soother factors influence the performance of supporting agricultureby village banks. Besides, due to the reason of limitation of the asset of village banks, it is difficult for village banks to support themarket target of both peasant household and medium-sized andsmall enterprises. Therefore, village banks should continue theprinciple of“supporting agriculture, supporting small, andsupporting scattered”, and strengthen the power of supporting thedemand of rural credit. At the last part, this paper has acomprehensive research about the influencing factors ofsupporting agriculture by village banks by using the form of fieldresearch and interview and the method of case study. Theinfluencing factors include not only the establishment anddevelopment of village banks themselves, conducting village banksbusinesses, innovations etc, but also other institutional factorssuch as the perceived quality of peasant households, andcooperation degree among financial organizations etc.Through positive analysis and case study, this paper reaches aconclusion that although the degree of supporting agriculture byvillage banks is small, the effectiveness of supporting agricultureby village banks is high, and the covering square is wide. In order tomake better policy effectiveness for village banks, village banksneed to be positioned differentially, and their asset size needs to beexpanded. In the meantime, this paper also makes some relatedpolicy suggestions about institutional factors of influencing theeffectiveness of supporting agriculture by village banks to achievebetter policy effectiveness for village banks.