How contrasting pastoral institutions influence reliance on credit loans in Tibet, China

Written by Gongbuzeren, Southwestern University of Finance and Economics, Chengdu, China and PASTRES country lead

Financial interventions at a pastoral household level have been a crucial part of rural development strategies in pastoral regions of China. The government has increased the scale of rural micro-credit loans, as well as establishing financial institutions that guarantee higher access to credit loans for pastoralists. Rural development policy in China assumes that access to financial services offers the poor a better opportunity to borrow and invest in income-generating economic activities, subsequently allowing them to climb out of poverty by making it possible to invest in education and business, which includes helping them to make the transition away from pastoralism.

A recent PASTRES-supported study, published open access in the Journal of Rural Studies, investigates how pastoral institutions influence engagement with micro-credit and rural finance in northwestern China. The paper explores the implications of micro-credit loans in a highly variable pastoral socio-ecological system that is simultaneously experiencing major institutional change. The paper examines how different land management institutions affect pastoralists’ ability to respond to uncertainty and engage with markets. Some arrangements, especially where mobility is reduced, mean that pastoralists’ incomes decline as costs of production increase. Pastoralists in such areas are as a result more reliant on credit loans to sustain their livelihoods compared to others with a more hybrid of traditional and market-based system of rangeland use.

Market-oriented policy in pastoral areas

The study area on the Qinghai Tibetan Plateau is home to some of the world’s largest alpine steppes where the majority of China’s pastoralists live. China has identified 14 regions as the poorest areas with the highest development priorities under the 2011–2020 rural poverty alleviation programme, and over half of these  are in pastoral regions. These poor, pastoral regions are also characterised by environmental variability and a high frequency of natural disasters that have direct implications for pastoral livelihoods, development and rangeland management systems.

Pastoral development policies in China have emphasised the positive role of market-based economic reforms and rural–urban mobility, while seeking a greater integration of pastoral regions into the formal economy and urban areas. Since 2013, China has further strengthened its market-based rural development intervention initiatives through the promotion of “Targeted Measures for Poverty Alleviation in Rural Regions”, and micro-credit and rural financial service provision are central to the policy.

In recent years, China’s pastoral regions have been influenced by national development policies and economic shifts, including institutional reforms that emphasise the privatisation of land-use rights and animal ownership. Such changes to rural rangeland institutions significantly influence herders’ access to rangeland resources and their ability to facilitate livestock mobility on spatial-temporal scales. These changes affect levels of livestock production costs and livelihood (income). The new paper argues that these institutional changes affect how herders engage with microcredit loans, including loan dependency and loan repayment.

Three villages: contrasting rangeland management institutions

Over three months of field study in three selected case villages in 2018, we empirically explored how herders are engaging with credit loans, what factors influenced them to take credit loans and how rangeland institutional reforms affected their dependency and ability to repay the loan. The three villages selected for this case study were anonymised as follows: ZR Village, AX Village and HT Village. These villages are in the eastern pastoral region of the Qinghai Tibetan Plateau, in Zoigê County, Sichuan Province, China. Although these three case villages were located very near to each other with similar ecological and social characteristics, these three villages have implemented very different rangeland management institutional strategies.

ZR Village largely continued to use rangelands collectively. In 2009, ZR Village initiated a community-based grazing quota system. Under this system, they maintained collective community use of rangelands with seasonal livestock mobility. They did this while clarifying individual grazing quotas by controlling the total number of livestock that each person could own in the village. This grazing quota system enables participants to trade among herders within the village. Decisions are made by the whole village and changes annually based on rangeland conditions.

In the late 1990s, when the government promoted the RHCP, HT Village decided to contract its rangelands into individual household units. At the same time, however, its herders realised that contracting rangeland into individual household units would limit livestock mobility. Thus, they implemented  group collective use of rangelands based on voluntary group organisation (ranging from 5–50 households). They also maintained seasonal livestock mobility.

Compared to the ZR and HT villages, AX Village implemented a very different rangeland management system. In 2009, AX Village contracted the community collective use of rangeland into individual households where wire fencing demarcated individual parcel boundaries. Thus restricted mobility and the rangeland rental system was gradually applied, with some families now renting grazing parcels from households with fewer cattle to gain access to more extensive rangeland.

These three rangeland management system types focus on three different scales -household, group and community – and.result in different institutional arrangements and contrasting livelihood opportunities, and in turn variable reliance on credit loans.

The importance of micro-credit loans, but multiple challenges of marketisation

Our results demonstrate that credit loans from both wealthier individuals and the government play a major role in household cash flow in all three villages. Herders must use loans to cover consumption-based costs, although a few are able to reinvest loans to generate profit. Many herders face significant challenges in loan repayment; thus, many pastoral households become trapped in a cycle of indebtedness, whereby herders have to take further loans to repay previous loans. These issues are not merely caused by a lack of financial institutions to regulate loan access or loan size, but are also the result of market-based institutional reform and development policies that increase the cost of livestock production.

Policies that promote market-based rangeland institutions, such as the rangeland rental system in the case of AX and HT villages, have gradually replaced traditional institutions and reciprocal social networks that are still observed in ZR village. As a result, herders’ ability to adapt to ecological variability is being compromised. Herders must therefore rely on the rangeland rental system to gain access to more rangeland. Even though it may create specific income-generating opportunities for poor families, it also increases herders’ livestock production costs.

Consequently, herders have to rely on credit loans to cover their livestock production costs. While different types of local market have been developed and promoted by the local government—including tourism markets, financial markets, such as credit loans and insurance, the rangeland rental system and livestock markets—only a small number of herders are able to invest the loans they take to diversify their income sources and livelihood strategies. In addition, while a very limited number of households invest their loans to expand their livestock herds, the majority of the herders in all three case study villages are powerless to shape the rural livestock market and increase the price and value of their livestock products.

Currently, market development policies focus on the creation of market environments, while only limited attention is paid to the capacity building of the local herders to participate in markets and take advantage of opportunities to improve their livelihood. Consequently, herders have to rely on credit loans to cover their expenses, while faced with the often insurmountable challenge of not being able to repay loans.

A higher reliance on credit loans, without the ability to repay them, is the result of a failure of standardised market-based institutional reform policies in pastoral regions. These development strategies focus more on the growth of rangeland markets to expand production, while limited attention is paid to how these management systems fit with the existing socio-ecological conditions of pastoral regions. By encouraging marketisation (including the privatisation of land and reduction of mobility), herders become more reliant on loans; but for many this just results in debt and increased impoverishment, rather than the expected market-led transformation. 

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