Chairman of China Banking Regulatory Commission (CBRC) Liu Mingkang learned something very important from a tour of the frontier provinces several years ago and his discovery has apparently paid off.

On that trip, as it was reported in the Chinese language press, the top banking official of the world's most rapidly developing economy, was dismayed by the standard of banking in the countryside.

Not a single loan service was available for many farmers across several different counties.

In the policy paper on rural financial service that CBRC issued on Friday, quite friendly terms were laid down for farmers to borrow money and even set up local trust and loan programmes.

What is most noticeable in the new policy is the threshold for farmers to set up their credit unions. Only 100,000 yuan (US$12,500) is required.

That amount is even smaller than what a mid-level company executive can make in a year.

At a time when even a county-level government can build glitzy high rises and even rebuild whole towns, it does not even seem to warrant Beijing to draw up a policy for, especially an industry usually denominated by huge numbers as banking.

But the social significance is by no means small, considering the fact that rural China is still home for more than half of the population, and is providing food, and therefore a basic security, to the whole nation.

In terms of its sheer size, the rural demand is beyond question. Even in days when the service is still unavailable in many places, the national total of outstanding rural loans was as much as 45 trillion yuan (US$5.6 trillion) in the end of November, according to CBRC officials' figures.

Between now and 2020, as economists say, there will be a need for at least 15 trillion yuan (US$1.8 trillion) in additional capital supply to help agriculture cope with the increasing global competition and food safety standards.

Another contrast is the existing law governing rural co-ops, which are not clear about financial autonomy. As one can read from the Chinese language press, people running pilot projects have been disappointed by their vagueness.

Now, with the CBRC policy paper, some clauses of the existing law may need revisions, such as the way the co-ops are organized and the way they make decisions.

After all, the policy's inevitable consequence is to nurture a huge number of grassroots organizations capable of their own financial management, so that they will not only help members attend their plots but help them buy things and services from outside their co-ops.

But it still takes a lot of work to turn the good intention in a policy into good results.

As officials who had structured the policy cited inspirations from Bangladesh and India in their successful micro-credit programmes, they must have given full consideration to China's unique problems too. A lack of help from the law is only one of them.

One other problem is a lack of professional financial auditors and in fact many people and many things to ensure the integrity and efficiency of the grassroots banks and credit organizations.

Once the barrier has been lowered for farmers to have their co-operative finance, it would become crucial as to how to protect their money, and to prevent them from being exploited by bigger companies.

Without such a protective mechanism from law to insurance local co-ops can lose their 100,000 yuan or so joint investment very quickly.

(China Daily 12/25/2006 page4)