A Study On Credit Risk Prevention System Of Rural Credit Cooperatives

Credit risk is one of the main risks faced by all financial institutions. As to rural credit cooperatives in China, based on the special historical and socio-economic realities, they are more vulnerable than other financial institutions and organizations and have to bear more risks. For the reason, it is because under the global economic integration background, domestic financial system develops and improves continuously. With the management methods changing, the Agricultural Bank of China, Agricultural Development Bank and China Development Bank re-positioned into the rural market, competition of rural financial markets will be even more intense. Base on such situation, as to credit unions, how to improve efficiency, prevent various risks are the question related to their own survival and development. According to China’s rural economic development and the status of credit management system, credit risk prevention system should be established from three aspects:The first aspect is to research the develop trend of rural financial market, establish environmental monitoring system for financial markets. Credit is the circulation process of currency in the market, social and economic environment determines the circulation efficiency directly. Nowadays China’s market economy system is still being further developed, the influence and control from the government in economy is still obvious. Therefore, lack of grasp of the macro market environment will no doubt take great risks. Because of this, if we want to do the research of the development of rural financial market trends, changes in demand for rural financial markets and the financial institutions to penetrate the rural market we should concern about government’s regulation of rural economy and taxes, changes in terms of savings-oriented policies to reduce the cost of credit.Second is to improve the management system of rural credit cooperatives. Because of the inefficacious management system, it leads to the lack of a strong organizational foundation and institutional basis to reduce financial risks. In order to improve the develop level of rural credit cooperatives we should improve the corporate, responsible governance system as soon as possible. What’s more, we still need to implement the responsibility system of loan administration strictly and establish retractable responsibility; to establish risk prevention practices and strict credit process regulations and strict accounting control system; whereas we must also strengthen supervision of the credit process, improve the effectiveness of assessment and evaluation mechanism for retractable loans.The last aspect is to strengthen information management system. Rural credit risk prevention, whether from the monitoring of the market environment, or from the internal supervision and management are both based on receive, analyze, and feedback of the information. As the reason, we have to create full-time management information to eliminate information asymmetry, or incomplete market information; we also need to improve the credit assessment system, establish farmer credit records and feedback to all functional departments to correct the information of market and farmers timely.