The Taiwan Banker

The Sanjiaoyong Agricultural Association (today the Sanxia District Agricultural Association) was founded at the beginning of the 20th century, the first of its kind in Taiwan. It was subsidized by the government to encourage hog and fish farming and arable land improvement, and assisted the government in collecting money and grain taxes. More than ten years later, as local agricultural associations were reorganized and restructured in accordance with the industrialization policy of the colonial government in order to assist development of local agriculture, the Association was further restructured into the Sanjiaoyong Credit Union, which consisted of four divisions: industrial credit lending, joint purchase of raw materials, joint sales of agricultural products, and joint utilization of production resources and equipment. At the time, Taiwanese agricultural credit unions focused on the credit department, while the Japanese onshore credit unions focused on the business department, so agricultural financing flourished, becoming one of the characteristics of Taiwan’s agricultural industry at the time. Many agricultural industries in Southeast Asia still lack such complete function to this day, which prevents small farmers in these countries from enjoying the credit function of credit unions. They have often ended up borrowing on credit from large landowners and capitalists, eventually being swallowed up, leading to social imbalances. After the war, although Taiwan’s grassroots finance continued to develop, changes in the economic climate and loopholes in corporate governance eventually led to a crisis in 1995, when more than 40 grassroots financial institutions experienced abnormal withdrawals and cash runs. The NPL ratio reached a peak of 16.23% in 2000, leading to the takeover of 36 credit unions with negative net worth by the Financial Reconstruction Fund (RTC), the then-Provincial Farmers’ Association (now the National Farmers’ Association), or banks. In order to rectify the situation, the government strengthened the cooperative system, unifying the Agricultural Bank of Taiwan with supervision of agricultural finance as a prelude to the launch of a special unit for agricultural finance. The recent upgrade of the Bureau of Agricultural Finance signifies a highly-anticipated new stage in grassroots finance. Mr. Lee Chung-yung, the new Director General of the Bureau of Agricultural Finance, said that the agency has set three major policy directions: promoting credit to enrich agricultural capital, strengthening agricultural insurance to stabilize farmers’ income, and firming up the agricultural finance system in order to revitalize the rural economy. Its main aim is to deal with the challenges of the ever-changing climate and market environment in order boost agricultural resilience. ESG finance will be an important growth direction going forward, so a better agricultural financial system may be a rare opportunity for Taiwan’s redevelopment, encouraging the next generation to stay in their hometowns, allowing agriculture to become a stabilizing force across villages and towns. Just as many agriculture associations slowly withdrew from the market after issuing credit cards and realizing that they could not compete, it is difficult to expect agricultural associations to invest in fintech and asset management at the same proportion as ordinary commercial banks. By going back to their roots, however, they may be able to develop in a completely new direction. For example, further integrating carbon footprints and responsible consumption through credit expansion and farmers’ markets, matching e-commerce with private blockchains, and including organic pesticide certifications or toxicity inspection results in credit decisions in order to form an ecosystem directly connecting consumer preferences with purchase of agricultural products could give the credit departments of agricultural associations a better future. This new agriculture industry, resilient and rich in ESG potential, will form a powerful and solid foundation for Taiwan’s further development.