The Mutual Aid Fund for Village Development: Goals,Governance Issues and the Governmental Support

LIU Xichuan;CHEN Lihui;YANG Qiming;

Despite its own institutional advantages including reducing formal credit constraints and reducing funds supply costs,the mutual aid fund for village development are facing the difficulties in fund raising and high credit risks. By examining and clarifying four misunderstandings,this paper discusses the conditions and the path to improve the governance institutions of the village development mutual aid fund in terms of its goals,property right,governance and the governmental support. Poverty alleviation is the first and foremost mission for the village development mutual aid fund,its sustainability should not be pursued at the expense of poverty alleviation. The net-borrowers are the real owners of the village development mutual aid fund,while the governance issues should focus on balancing the interest conflicts between the net-borrowers and the net-lenders,especially protecting the net-borrowers. The interest conflicts cannot be resolved by the democratic governance. The government should not just give it a free hand after handing the money to the community. It is the government's duty to adopt some measures such as the allotment of shares to realize the incentive compatibility among members,meanwhile bearing the costs for the institutional innovation.