For quite some time, the difficulty in borrowing money has severely prevented Chinese farmers from making headway in developing their industry. Their weak economic foundation and lack of credit guarantee are blocking their access to formal financial institutions.

In response to such problems as low financial institution network coverage, insufficient capital supply and inadequate competition among financial institutions, at the end of 2006, the China Banking Regulatory Commission issued several important policies to make it easier for financial institutions to operate in the countryside. Three new types of rural banking institutions are allowed, namely, village or town banks, community credit cooperatives and their branches that focus on credit business under big banks. To achieve this, registered capital required for the establishment of new credit cooperative organizations is lowered to 100,000 yuan from the previous 1 million yuan.

The implementation of these new policies implies the end of the traditional "city-centered" policy adopted by China's banking sector and an improvement of the disproportional emphasis on agriculture and industry. The rural financial market will be open to both domestic and foreign financial institutions. By encouraging rural banking services, the Chinese Government means to help farmers become rich through expanded access to micro-credit loans, which, in turn, is expected to boost the development of the country's rural financial industry. In this sense, the new policies are of far-reaching significance.

China began to speed up the reform of its rural financial system in 2001. By the end of November 2006, the balance of agriculture-targeted loans issued by rural credit cooperatives across the country, the Agricultural Bank of China and the Agricultural Development Bank of China had amounted to 4.5 trillion yuan, making up 20 percent of the aggregate credit offered by all financial institutions. A total of 70.72 million farming households have benefited from these loans.

Despite the striking achievements in the reform of the rural financial sector, China is still faced with hard tasks ahead, but this also means a big potential in China's rural financial market. The current rural deposits totaled 4 trillion yuan, but only about 1 trillion yuan serve as farming loans. According to estimates of the National Bureau of Statistics, by 2020, China's rural development will ask for another 15 trillion yuan worth of loans.

Looser market access standards really mean a lot to China's rural financial market that has been struggling against hardship for so long. An isolated financial market is unable to breed competition and without competition, farmers and rural enterprises always find themselves in serious shortage of various financial services. Meanwhile, we must admit that a loose market access standard will not work alone.

The reform experiences in the past decade or so show that programs that do not take farmers' fundamental interests and real demands into consideration, or those that do not follow market rules, are doomed to failure. No one is clearer about their financial demands than the farmers themselves and farmers will never abuse their own capital. All those who are interested in China's rural financial market should bear this point in mind.

Therefore, based on the current reality in China, village or town banks, micro-credit institutions and micro-credit insurance companies are all great significance for China's rural financial sector.

The new policies should not merely concentrate on an easier market access. The government should pay more attention to the future development of rural financial institutions. Relevant protective policies such as government credit guarantees for farmers and credit guarantees among farmers themselves, should be allowed, so as to help rural banks cope with the hardship at the initial stage of development.