TARGETING MEASURES AT THE PROJECT LEVEL

К оглавлению
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 
17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 
34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 
51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 
68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 
102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 
119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 
136 137 138 139 140 141 142 

Under the terms of the implementation of the poor county targeting

system poverty reduction funds were delivered to counties through different

channels. The county governments and the Agricultural Bank of China

county branches played key roles in project selection and community

targeting. Here we discuss the use of the main categories of poverty funds

disbursed through this system and some of the limited evidence on their

impact. Due to lack of data, little empirical work has been done on the

effectiveness of poverty targeting at the community and household levels.

Much of the evidence is anecdotal and here we draw on fi eld interviews

with local offi cials, households and other anecdotal evidence.

Subsidized Loans

The main objective of the subsidized loan program was to provide lowcost

credit (typically at nominal interest rates of 2 to 3 per cent) to support

productive activities in poor areas. Subsidized loans were managed mainly by

LGPR county offi ces and the Agricultural Bank of China county branches.

The choice of projects and households to be supported was left mainly to

LGPR county offi ces, whilst loan recovery was left to the bank county

branches. However, with the commercialization of the state-owned banking

system in recent years, the branches of the Agricultural Bank of China have

been given more independence in deciding the use of subsidized loans.

When the subsidized loan program began in 1986, the government

believed that a key constraint facing poor farmers was the lack of available

capital and an inability to gain access to the formal credit system. The

government also felt it was important to provide technical assistance and

other services. With this premise, priority in the fi rst phase of lending was

given to distributing subsidized loans directly to poor households selected

by poverty offi cials to develop cropping, animal husbandry, and agricultural

processing. An offi cial survey at the end of 1987 showed that in the fi rst

year of the program, 92 per cent of subsidized loans were distributed

directly or indirectly to farm households, rather than to county, township

or village enterprises.

This pattern of loan distribution ended in 1989, when the LGPR opted to

encourage the development of economic entities (jingji shiti), as a means of

assisting the poor. These economic entities were enterprises engaged in some

kind of productive or service activity that helped poor households to escape

from poverty. The new policy stipulated that in order to qualify for subsidized

loans at least half of the employees of the economic entities had to be from

poor households. This change in lending priorities was based on the view

that most poor households could not make good use of subsidized loans

on their own, because they lacked the necessary technical and management

ability and could not achieve economies of scale in operation. In contrast,

the view was that economic entities, such as collectively managed orchards

or companies selling agricultural products, were managed by professional

personnel, who could coordinate activities on a larger scale. An important

goal of the reform was to improve the productivity of loans and achieve

higher repayment rates. Evidence from some poor counties and provinces

revealed that since 1989, over 70 per cent of subsidized loans had been

distributed to economic entities.

The main problem with lending to economic entities was that the

connection to poor households was much less direct, which compromised

the original targeting goals of the program. Many of the loans were given

to township and village enterprises or county-owned enterprises, increasing

the revenue base for local governments, but not necessarily benefi ting poor

households. What was more serious was that most of the industrial projects

built with subsidized loans failed due to technical, management and market

limitations; hence, there was no clear improvement in the repayment rate

of the loans. At a national conference on poverty in September 1996, the

government decided to return the focus of lending to providing direct loans

to poor households for cropping and animal production.

Impact of subsidized loans

The subsidized loan scheme has been widely criticized for failing to target the

poor effectively. To a large extent the problem has been due to the political

and economic environment in which local government institutions operate

and to confl icting goals. First, to provide incentives for effective loan use and

repayment, local poverty offi cials often used past performance as a criterion

in awarding new loans, even when the objective was poverty reduction.

Many local offi cials believed that the poor are incapable of managing

projects successfully and preferred to promote economic development (and

indirectly poverty reduction) by lending to enterprises, economic entities

and large farms.

Even more important sources of poor targeting arise because of factors

motivating local offi cials. There are three local players with a stake in the use

of subsidized loans; the local offi ce of the LGPR, the local government, and

the local branches of the Agricultural Bank of China. Local government

offi cials have been concerned with generating revenues and furthering

economic development in general, not just in poor areas and for poor

households. This may have led them to support the diversion of funds

to enterprises or investment in more promising areas. This is especially

true given the acute fi scal woes of many local governments in poor areas.

Agricultural Bank offi cials are interested in profi t and so care about loan

repayment above all else. As the transaction costs of small loans to poor

households are relatively high and loan use is diffi cult to supervise, both

the Agricultural Bank of China and the Agricultural Development Bank3

were unwilling to grant loans to poor farmers in the absence of stringent

supervising mechanisms. Because they disbursed the funds, they could

veto projects proposed by the local LGPR if they felt the likelihood of

repayment was low. This has led to numerous confl icts between bank

offi cials and poverty offi cials. Even when loans were approved, Agricultural

Bank offi cials had an incentive to shorten the period of the loan (so that

funds could be relent quickly at higher rates), delay loan disbursement,

or divert loans outright. Finally it is argued frequently in the media that

misappropriation and corruption led to the diversion of subsidized loans

to non-poor groups.

The diversion of subsidized loans to non-poverty reduction activities

has become more serious in recent years with the commercialization of

the Agricultural Bank of China and the closure of many local branches.

A survey by the Ministry of Finance found that a majority of subsidized

loans were made either to large-scale enterprises or for infrastructure

construction, such as highways. In 2002 of 750 million yuan in subsidized

loans made in Jiangxi province, only 150 million were household loans and

these did not necessarily go to poor households. Similarly the same study

found that Pingjiang county in Hunan province and Sichuan and Le An

county in Jiangxi province had not made any loans to poor households in

recent years (Wen, 2003).

Even when loans were lent directly to households in poor villages, in

many cases they were not given to the poorest households. Evidence from

a nationwide survey of villages conducted in 1996 provides some evidence

on the limited targeting effectiveness of subsidized loans within villages. Of

the 184 villages in six provinces that were surveyed, 32 had received poverty

loans a total of 58 times in the past. Of these 58 times, data on the average

wealth of households exist in 33 cases. Village leaders were asked whether

most loans went to better-off farmers, average farmers, or poorer farmers.

Fifty-eight per cent of the time the loans went mostly to farmers of average

wealth, while 43 per cent of the time they went to farmers of below average

wealth. In no cases did village leaders report that the loans went mainly

to better-off farmers. However, the relative frequency of the allocation of

loans to average rather than poor farmers appeared to have increased in

the 1990s. Loans received before 1990 went to poor households 45 per cent

of the time. Loans received in 1990 and after went to such households only

36 per cent of the time, indicating a weakening of targeting effectiveness

(Rozelle et al., 1999).

Micro-credit schemes were introduced in 1997 as an important measure

to improve targeting accuracy, as well as loan recovery. Their use spread

rapidly, so that by the end of 2001, the amount of micro-credit issued

by the Agricultural Bank of China through the use of subsidized loans

totaled 3.8 billion yuan, covering 2.3 million poor households and a poor

population of 10.6 million (Cao, 2003). In assessing some of the early

efforts at micro-fi nance in PRC, Park and Ren (2001) fi nd mixed success

between types of program, with those by non-governmental organizations

performing considerably better in terms of excluding richer borrowers than

government programs.