This study examines the features of an asset-based innovation in rural China—Hutubi Social Security Loan Program, and explores the institutional mechanisms built in this program that encourage asset building and promote inclusive growth. Initiated in 1998 by the local rural social security office, the Hutubi program allows social security participants to use their own and/or other people's retirement savings in social security accounts as legal collateral to take out loans for physical assets related to agricultural production (such as livestock and farming equipment).
Methods: This case study uses three sources of data: the administrative data, the survey data and the in-depth interview data. Descriptive analyses (N=1200) are conducted to understand program operation, demographic characteristics of participants, program activities, and program effects.
Results: Analyses show that (1) the program increases local farmers' access to financial services and their ability to borrow and invest; the number of loans taken out by program participants increases over the years. (2) The majority of participants (92%) take out loans to purchase physical assets related to agricultural/pastoral production. (3) Program operation successfully augments local social insurance funds; the annual growth rate of the funds is 8.3%. (4) Financial incentives set up by the program also encourage participants to accumulate retirement savings; the average retirement savings increases by 57% from 1998 to 2003. (5) The program creates a mechanism to maximize the use of assets through the means of various loans, and provide a new approach to community development.
Conclusion: The Hutubi program expands access to financial services and opportunities of economic growth for the poor. The program shows that asset building among the poor is possible with proper policy incentives and financial services being offered. Access to micro credit loans and financial services provide effective incentives to cater farmers' financial needs. Structural incentives, when appropriately designed and practically implemented, can encourage the poor to build assets. Like Hutubi, many rural areas of the developing world experience a shortage of appropriate financial services available to the poor.