The Impact Of Interlinked Credit And Insurance On Rural Financial Institution

In order to solve the problem of loan difficulty in farmers, the first document from the central government in 2009 proposed that we should establish the interactive mechanism of rural credit and agricultural insurance, and make well use of the risk transfer function of agricultural insurance to safeguard the development of credit. The later first document from central government and rural working conference also emphasize the importance of the cooperation between credit and insurance. In practice, there have been various innovation mode of interlinked credit and insurance throughout the country. For the representative mode, there have been “personal accident insurance + microcredit” mode in Shandong, “political agricultural insurance + preferential interest rate” mode in Guangdong, “insurance + credit + government subsidy” mode in Xinjiang, etc. Interlinked credit and insurance can effectively mitigate credit risk, and increase the financial demand in farmers. As the pioneer in agricultural insurance and rural financial reform, Changfeng, Anhui province explore an interlinked credit and insurance mode which is based on specialized farmers cooperatives, this mode can effectively increase the supply of credit, and realize zero non-performing loan ratio. Therefore, on the basis of investigation on Changfeng, this paper explore the impact of interlinked credit and insurance on rural financial institutions.This paper sums up related literature and related rural financial theories, and analyzes the current situation and existing problems of credit supply and demand in rural financial institutions. From the angle of risk, this paper establishes the interactive mechanism of credit and insurance, uses pressure test to analyze the impact of interlinked credit and insurance on rural financial institutions, and explores the theoretical implications in Changfeng mode. In this paper, we can come to the following conclusions:(1) As the absence of effective collateral, and great risk in agricultural production, a large number of credit flow to cities and non-agricultural sector, farmers suffer double constraints from credit and risk, the interactive mechanism of credit and insurance can solve the problem of double constraints.(2) Through the empirical analysis, this paper finds that only when the deduction of loan rate controlled in a certain range, the rural financial institutions can achieve the increase of net income, when the deduction of loan rate is excessive,the increase in transaction costs is greater than the increase of the interest income, it will bring loss to rural financial institutions; Meanwhile, the non-performing loan ratio in rural financial institutions has been decreased effectively, and higher insurance level can promote a larger decline.(3) On the basis of case study, this paper finds that interlinked credit and insurance can effectively control credit risk, reduce the information asymmetry between rural financial institutions and farmers at a certain extent, and save the transaction cost in rural financial institutions.