Rural Loan Cooperative of Puyang, Henan Province of China, referred to as the Mutual Loan Cooperative, is one of the seven microfinance poverty alleviation research and experimental bases of the Chinese Academy of Social Sciences. It was incorporated in the Civil Affairs Bureau of Puyang in July 2006 as a corporate legal entity for the purpose of using microfinance to alleviate the problem of capital shortage in rural areas and exploring new ways for comprehensive rural construction. After 2016, it was transferred to local governments for supervision after passing the test by the Chinese Academy of Social Sciences and was changed to a general partnership enterprise. At the beginning of the establishment, the Mutual Loan Cooperative formulated the articles of association in accordance with the principle of "privately-run, privately-managed and privately-benefited", and operated according to the multi-layer mutual fund assistance model of "headquarters and municipal cooperative + branch cooperative + mutual assistance centre". 

A branch cooperative is the basic unit of management and accounting of the organization; a mutual assistance centre is established by taking the villages as the unit and mobilizing the masses to voluntarily join, and it has an independent account in the branch cooperative. The Mutual Loan Cooperative consists of basic members and members with stock funds. One can become a member by paying RMB 50 per year per household, or RMB20 in Yanhuangtan District, and a member with stock funds by paying RMB 500 per year per household.

In the light of experience of withdrawals from the Bangladesh Rural Bank, the Mutual Loan Cooperative integrated previous "mobile banks" – a financial management model that provides financial services to farmers, and tracks the whole process of loan marketing, management and recycling through ceaseless flow of customer managers in rural areas – introduced modern financial reform ideas such as the post-employment risk responsibility system, and established an effective loan and risk prevention and control model.

Loan models. The mutual loan is not applied to the Mutual Loan Cooperative but is submitted to the management staff of the mutual assistance centre for evaluation by farmers. The evaluation content has three aspects: moral quality, group and project, for the purpose of solving the problem of information asymmetry in the loan process. After the evaluation is passed, the President of the mutual assistance centre notifies the customer manager to enter the village to conduct the investigation. Following a successful outcome, a multi-party loan agreement is signed; the applicant can obtain the loan on the same day or the next day. The management personnel and the customer manager of the centre supervise each other and share joint responsibility for loan management. The management personnel bear the joint guarantee responsibility for the loan of the centre; the customer manager bears the responsibility for timely issuance and collection of loan funds and is responsible for any arrears from the loan. A group joint guarantee system is implemented for the loan, and the loan personnel are free to combine a three-household group, and the three households bear the responsibility for joint guarantee. 

Loan types. Members can enjoy different types of loan support provided by the Mutual Loan Cooperative: i) farmers' loans as in the Grameen Bank model; if three members combine into a three-household group, they can obtain support of up to RMB 2,000; ii) farmers' mutual fund loans: if members need a larger loan they need to become a shareholder of the mutual funds; for example, they can obtain a loan of RMB 5,000 by investing RMB 1,000 and providing corresponding guarantees; iii) rural merchants' mutual fund loans: if the amount of money required by a rural merchant is greater than the maximum provided by the farmers' mutual funds, he should become a shareholder of the mutual funds; for example a rural merchant can obtain a loan of RMB 50,000 by investing RMB 10,000 and providing corresponding guarantees; iv) urban household loans as in the Grameen Bank model; such loans aim at low-income households in urban areas; if these households have a fixed income as a guarantee, the Mutual Loan Cooperative will provide a loan of RMB 20,000.

In addition to the basic loan business, the Mutual Loan Cooperative plays the role of an organizational platform. For example, it conducts group purchase and marketing of fertilizers, seeds and other agricultural materials, which can reduce the intermediate sales links and enable farmers to save expenditures and increase profits. It also organizes women to form mutual assistance teams for production, which can solve the problem of shortage of young labour forces due to working outside during busy periods.

For more information, please contact WFP China COE (wfpcn.coe@wfp.org)