"Bank + Futures + Insurance" Poverty Alleviation Model of Cotton Inclusive Finance in Xinjiang Uygur Autonomous Region

ABSTRACT

In view of the irreversible impact of bad weather on cotton at seedling stage in Xinjiang, the yield and quality of new cotton will be greatly affected. China Construction Bank calls for improving financial services through the poverty alleviation mode of "Bank + futures + insurance", and takes the opportunity of "financial precision poverty alleviation"; exploration and development as an opportunity to actively adapt to the deepening reform requirements and development reality of Xinjiang production and Construction Corps. It includes: (1) introducing cotton futures price insurance project to Xinjiang cotton farmers by strengthening business linkage with CCB futures subsidiary and people's property insurance; (2) establishing linkage mechanism of "agricultural subsidies, agricultural products futures and agricultural insurance"; and (3) providing new ways of price risk management and financing. The decisive role of the market in the allocation of resources is constantly strengthened, and the demand for risk management of the real economy is also increasing.

BACKGROUND

(1) Project targeting

Agriculture is the foundation of national economy and the foundation of our country. However, due to the particularity of agricultural production, it has been faced with great risks for a long time. For example, the demand for risk management of cotton industry is urgent, the ability of cotton farmers to resist risks is weak, the cotton industry chain is faced with the risk of fluctuation of cotton price, the income of cotton farmers is unstable, the guarantee is insufficient, and it is difficult for cotton farmers to obtain bank credit support The risk of agricultural production and management and the protection of the interests of growers and operators are the problems that need to be paid attention to and solved. At present, China is in a critical period of vigorously promoting agricultural modernization and accelerating the transformation of agricultural development mode, and market-oriented reform is the only way. Xinjiang Uygur Autonomous Region Branch of China Construction Bank actively followed up and innovated the financial poverty alleviation work in the field of cotton, and launched cotton futures price insurance project to Xinjiang cotton farmers to provide risk protection.

(2) Main contents of the project

With the deepening of market-oriented reform, the decisive role of the market in the allocation of resources is constantly strengthened, and the demand for risk management of the real economy is also increasing. Through the financial "Bank + futures + insurance" poverty alleviation mode, complete innovative projects, further improve the rural financial service system, and form the joint force of financial support for agricultural development.

INTERVENTIONS

Through docking with CCB futures, CCB, together with PICC and Mianma company, actively followed up and innovated the financial poverty alleviation work in cotton field, launched cotton futures price insurance project to cotton farmers in Xinjiang, and established linkage mechanism of "agricultural subsidy, agricultural product futures and agricultural insurance" for the first time in the field of cotton industry to provide risk protection.

(1) "Bank, government and insurance" innovation project

Supported by Zhengzhou Commodity Exchange, CCB, CCB futures and PICC Property Insurance jointly launched the innovative project of "bank and government insurance" of cotton Inclusive Finance. The insured farmers of the project are all small credit cotton planting loans of CCB. CCB futures and insurance company provide price insurance services for farmers with the premium contributed by Zhengzhou Commodity Exchange. The arithmetic average price of daily closing price of cotton futures during the insurance period is taken as the compensation purchase price. At the same time, the minimum compensation amount is increased. After the insurance price is determined by CCB futures and PICC Property Insurance, the transaction confirmation is signed Property insurance shall issue insurance policies for farmers according to the insurance price. If the purchase price of compensation at maturity is lower than the insurance price, the difference shall be paid by CCB futures to PICC P&C, and then the PICC P&C shall compensate the farmers; for the insufficient part, compensation shall be made according to the minimum compensation amount.

Relying on the advantages and experience of CCB's domestic and foreign financial platform, the project establishes an automatic system of business process, hedging transaction and risk management. Referring to the domestic and foreign experience and combining with independent innovation, the project estimates the future volatility through GARCH model to ensure the effectiveness of hedging, and effectively controls the pilot cost and improves the loss ratio by adopting the minimum compensation and automatic innovation hedging scheme.

(2) Project operation process

1. CCB and CCB futures issued credit loans to farmers during spring sowing. Cotton futures price insurance was used as a risk mitigation condition to provide farmers with individual agricultural credit loans. Loans were issued in batches without collateral or guarantee, and the loan interest rate was implemented according to the benchmark loan interest rate of the same grade in the same period stipulated by the people's Bank of China.

2. CCB will inform the people to protect the property and insurance and feedback the CCB futures and its subsidiary Jianxin commerce and trade; the human insurance and property insurance shall design the relevant cotton price insurance scheme, and Jianxin commerce and Commerce shall design and price the OTC option products (reinsurance) meeting relevant requirements according to the current futures market price, and then feed back to the human insurance financial insurance. After that, the company will provide the insurance to the people and insurance industry Negotiate to determine the final product type and price.

3. CCB signed an OTC option product agreement with PICC P&C, and PICC P&C determined the final cotton insurance price according to the admission price of OTC options of CCB, and issued formal insurance policies; CCB commerce and trade conducted corresponding target futures trading in the domestic futures market to hedge the price risk of OTC options.

4. At the final maturity, CCB will pay the exercise income to PICC P&C according to the profit and loss of OTC option products, while PICC P&C will make compensation to cotton farmers when the price meets the compensation conditions, and the compensation funds will be directly transferred to the CCB loan account for farmers to ensure the smooth repayment of farmers.

5. CCB signed an agreement with the borrower to clarify the rights and obligations of both parties in product promotion, establish a communication mechanism with the village committee, and do a good job in loan management. At the same time, during the autumn harvest period, CCB issued cotton purchase loans to cotton and hemp purchasing enterprises for preferential payment and purchase of cotton for farmers, so as to ensure the smooth repayment of agricultural loan funds. The diagram is as follows:

RESULTS

Through more than two years of practice, the pilot project of "Bank + futures + insurance" not only meets the objective needs of supporting the development of "agriculture, rural areas and farmers" in the field of cotton, coping with the fluctuation of cotton price, improving agricultural credit and strengthening the risk management of cotton industry chain, but also stabilizes the income of farmers, broadens the business of financial institutions and reduces the participation funds We have achieved a win-win situation in many aspects.

(1) Inclusive Finance "Bank + futures + insurance", financial collaborative innovation and upgrading

In this mode, CCB provides loans to farmers, while CCB futures and PICC provide price protection services for loan farmers to ensure the interests of cotton farmers and mitigate the bank credit risk. CCB actively cooperates with CCB futures in agriculture related risk management business, explores the development mode of "Bank + futures + insurance" for agricultural products, promotes complementary advantages and mutual benefits, explores market-oriented channels and standardized products to alleviate the financing difficulties of agricultural enterprises, and puts forward new ideas and opens up new ideas for financial institutions to explore the business of agricultural related risk management and inclusive financial loans route.

(2) Inclusive Finance "Bank + futures + insurance", social benefits are remarkable

On the one hand, through market-oriented operation to hedge the price risk faced by cotton farmers, better protect the interests of cotton farmers, solve the pain points of the government, enterprises and farmers, stabilize the cotton income expectations, reduce the pressure of government investment, and establish a market-oriented channel and operation mechanism to ease the financing difficulties related to agriculture. On the other hand, farmers are fully guaranteed in terms of planting loans, price insurance and cotton sales, which solves the worries of cotton farmers, further enhances the stability of personnel and improves the ability of population aggregation, which is conducive to the fundamental realization of poverty alleviation.

(3) Programmed hedging and technological innovation

Relying on the advantages and experience of China Construction Bank's domestic and foreign financial platform, an automatic system of business process, hedging transaction and risk management is established. Referring to the domestic and foreign experience and combining with independent innovation, the future volatility is estimated by GARCH model to ensure the effectiveness of hedging. The pilot cost is effectively controlled and the loss ratio is improved by adopting the minimum compensation and automatic innovation hedging scheme.

True story -- the case of Tumushuke, the third division of Xinjiang production and Construction Corps

1. Assistance Unit: Xinjiang Uygur Autonomous Region Branch of China Construction Bank

2. Main body of assistance: Tumushuke City, the third division of Xinjiang production and Construction Corps

3. Project operation: in March 2019, CCB cotton Inclusive Finance "Bank + futures + insurance" poverty alleviation mode was held in Tumushuke City, the third division of Xinjiang production and Construction Corps. The successful implementation of the on-site compensation greatly touched the enthusiasm of cotton farmers to participate, and had a sensational effect in the local area. Through the compensation, everyone really felt the "Bank + futures" of cotton Inclusive Finance+ The "insurance" poverty alleviation model can better protect the interests of cotton farmers, reduce government investment, hedge the price risk faced by cotton farmers through market-oriented operation, establish market-oriented channels and operation mechanism to alleviate the financing difficulties related to agriculture, and make poverty alleviation work no longer a slogan. Through strengthening social joint efforts, the poverty alleviation policy is truly implemented in the hands of the people and cotton farmers. At the same time, after the on-site compensation is successful, it will be highly recognized by the local government immediately. In the later stage, the mode will be further extended and the application effect will be expanded according to the working idea of "pilot first, easy before difficult, experience summarized and gradually expanded".

Project income: 406 cotton farmers received compensation of 1.01 million yuan from the underwriting agency, and the maximum compensation amount of a single cotton farmer reached 18,500 yuan. The market-oriented operation and professional level were fully utilized to smooth the fluctuation risk of cotton. The successful development of the financial poverty alleviation model not only stabilized the farmers' income, improved the loan security, but also achieved good social benefits and comprehensive income.

LESSONS LEARNED

On the basis of the existing successful experience, "Bank + futures + insurance" mode can be further extended to "government + Bank + futures + insurance" mode. On the basis of continuing to provide risk protection for cotton farmers, it can realize cost saving, quality improvement and efficiency increase in the whole process of cotton.

(1) China Construction Bank builds a sharing platform for cotton industry chain

Cooperatives, cotton farmers information, and various companies in the industrial chain are registered on the platform, and the whole process is electronic and transparent. Among them, farmers can join the cooperatives voluntarily and take land as shares. They can also entrust the land to the cooperatives. The cooperative implements the six unified standardized management of "unified varieties, unified land preparation, unified sowing, unified management, unified harvesting, and unified sales".

Agricultural materials companies (seeds, pesticides), Agricultural Machinery Cooperatives, labor service companies, ginning plants, transportation companies, etc. have established social enterprise alliance with cooperatives. With the advantages of CCB's finance, technology, full license and full function, and supported by bank credit, all nodes of the cotton industry chain can be opened up. All units can jointly serve cotton farmers on the platform, remove middlemen and link to the final product manufacturers. Each company on the platform only provides services for the cooperative, and does not participate in lint profit sharing. The cooperative only pays labor fees, processing fees and service fees, and the final commodity (lint) belongs to the cooperative and cotton farmers.

(2) Granting personal cotton planting loans

During spring sowing, CCB issued cotton planting loans to cotton farmers through "Bank + futures + insurance" products. That is to say, CCB and CCB will provide cotton farmers with credit loans for individual support by taking cotton futures price insurance as risk mitigation condition in spring sowing; insurance companies will design relevant cotton price insurance schemes; CCB will design OTC option products (i.e. reinsurance) that meet relevant requirements according to the current futures market price, and feed the pricing back to the insurance company for confirmation through negotiation Set the final product type and price, sign the OTC option product agreement, and the insurance company issues a formal insurance policy. CCB carries out the corresponding subject-matter futures trading in the domestic futures market to hedge the price risk of OTC options; at the final maturity, CCB commerce and trade will pay the exercise income to the insurance company according to the profit and loss situation of the OTC option products, and the insurance company will pay the compensation conditions when the price reaches the compensation conditions Under such circumstances, compensation should be paid to cotton farmers, and the compensation funds should be directly transferred to the CCB loan account dedicated to farmers to ensure the smooth repayment of farmers; CCB and the village committee jointly do a good job in loan management, and at the same time, during the autumn harvest period, the cotton and hemp enterprises can continue to open the net exposure based on the cotton purchase and sales situation Risk hedging through futures contracts.

(3) Loan for purchase of seed cotton of CCB

At present, most of the cotton is mechanically harvested and transported directly to the designated ginning plant. According to the seed cotton purchase system, CCB provides loans to cooperatives, and the loan funds are cashed into cotton farmers' cards, and cotton farmers return their personal cotton planting loans during spring sowing. The loan guarantee mode of working capital adopts the mode of standard warehouse receipt pledge of lint Futures (future cargo right + whole process supervision).

The realization of future cargo rights + whole process supervision: first, CCB access to seed cotton purchase system and cotton processing and inspection comprehensive data platform to query relevant information; cotton ginning plants purchase property insurance with the beneficiary of CCB. Second, lint transportation. After cotton is processed into a certain amount of lint, it will be transported to the supervision warehouse of Zhengzhou Commodity Exchange in a short distance. For short distance transportation, a tripartite agreement is signed to specify the transporter and warehouse. Transportation insurance shall be carried out for each truck of cotton before delivery, and the insurance beneficiary shall be CCB. Third, CCB trading company holds standard warehouse receipts on behalf of the company. The lint warehouse receipt is registered as the futures standard warehouse receipt of CCB trading company. According to the customer's demand, purchase lint futures hedging and sell lint. After the lint sales fund reaches the account designated by CCB, CCB will notify CCB trading company to ship and finally complete loan repayment.

(4) Flexible sales of futures and spot and easy matching platform for public transport

It can give full play to the functions of futures and spot markets, and can sell cotton throughout the year, avoiding the instability of the price before and after the autumn sale. On the one hand, selling in the futures market, price locking to ensure income; cotton farmers can focus on cotton yield and quality problems, or go out to work, and the cooperatives can operate by themselves, completely separated from field work; cotton farmers, as shareholders of cooperatives, participate in the profit distribution brought by lint sales. On the other hand, as lint is uniformly registered in the name of CCB trading company, CCB makes full use of our bus easy matching platform to release lint information to help cotton farmers and cooperatives sell lint.

The poverty alleviation mode of "Bank + futures + insurance" of CCB has given full play to CCB's full license and whole process business advantages in banking, futures, commerce and other aspects, realizing the cross-border integration of "three rural" services. In the later stage, CCB will give full play to the role of financial tenderness and painless scalpel, leverage more financial collaborative services for "agriculture, rural areas and farmers" and targeted poverty alleviation. On the basis of continuing to provide risk guarantee for cotton farmers, CCB will promote cotton farmers to change from the traditional habit of selling seed cotton to selling cotton on their own, remove middlemen, further increase the income of cotton farmers, and comprehensively promote the Rural Revitalization Strategy.