China's first village bank was inaugurated on Thursday in a remote rural county of southwest China's Sichuan Province in the government's latest drive to provide farmers with easier access to small loans.

The Huimin village bank and Huimin finance company, located in Yilong county on the outskirts of Nanchong, are among the first five village banks to be approved by the China Banking Regulatory Commission (CBRC), the industry watchdog, said Cheng Keng, deputy director of the commission's Sichuan provincial branch.

"The two grass-roots financial institutions will increase lending to the local farmers and boost development in the rural county," he said.

The Huimin village bank has a registered capital of 2 million yuan (US$256,410), with the state-owned Nanchong Commercial Bank holding 50 percent of the shares and five private companies holding 10 percent each.

The Huimin finance company, a lender wholly owned by Nanchong Commercial Bank, has 500,000 yuan (US$64,102) of registered capital.

"The village bank will be able to make ends meet when its savings total 50 million yuan and loans reach 30 million yuan, if the rate of non-performing loans is around one percent," said Huang Guangwei, president of Huimin village bank.

Four other village banks will become operational in the province before the end of August, according to Cheng. "These will provide opportunities for more investors to enter the rural financial market."

He said the reform is also being implemented in five other western provinces including Qinghai and Gansu.

"It stems from policies and regulations publicized by the CBRC in January to facilitate banks' entry to the rural market and improve their financial services," he said.

The regulations lowered the required registered capital to a minimum of 3 million yuan (US$384,615) for a county bank and 1 million yuan (US$128,205) for a village bank. The threshold capital for a lender is still lower by at least 50 percent.

China's rural financial market is underdeveloped, according to the State Bureau of Statistics.

It said the country would need 15 trillion yuan (US$1.92 trillion) to fund its new countryside construction by 2020, most of which will come from financial institutions. But the rural financial network and services currently in place in many areas would not meet the demand.

"Village banks will mushroom to help fill up the gap," said Huang Guangwei. "We've found in our market research that there is a huge demand for banking services from individuals and small businesses in the countryside."

But they have had little access to credit loans and other services since an industrial reshuffle forced most state banks to withdraw their rural outlets in the late 1990s, leaving behind only the Agriculture Bank of China, rural cooperative banks and postal savings banks.

(Xinhua News Agency March 1, 2007)