The loans come at a cost. The interest rates are 8 to 10 percent, or two to four percentage points above the current rate in urban markets, to reflect the higher costs and risks of lending in rural areas. Still, the rate is less than the average 12 to 15 percent that's charged by unlicensed lenders -- the well-off farmers and local businessmen who are often the only lenders for those who don't qualify for rural cooperative loans, said Cai.

    Huimin Village Bank, with a registered capital of 2 million yuan, was set up by the state-owned Nanchong Commercial Bank, which holds 50 percent of the equity. Five private companies hold 10 percent each.

    Like their peers in Yilong County, many farmers and rural enterprises have few places to turn to for funds. Official figures show that Chinese farmers rarely obtain loans of more than 5,000 yuan, much less than the personal or commercial loans granted in cities.

    For long, the only loans available to farmers were from rural credit cooperatives, which were few and far between and slow to make lending decisions.

    China has been trying to find new ways to provide financial services to its vast countryside after most state banks closed their rural outlets, a result of industry restructuring, in the late 1990s. When the state banks withdrew, all that was left behind were the Agricultural Bank of China, rural cooperatives andpostal savings banks.

    In December 2006, the CBRC issued a regulation that made it easier to establish rural community banks. The registered capital requirement was lowered to a minimum of 3 million yuan for banks in counties and 1 million yuan in villages and towns. The selected pilot regions were Jilin, Hubei, Sichuan, Qinghai, Gansu and Inner Mongolia, all less-developed provinces and autonomous regions.

    In October 2007, CBRC expanded the pilot regions to 31 municipalities, provinces and autonomous regions.

    By the end of 2007, there were 31 such new rural financial institutions, offering farmers easier access to loans and providing credit to businesses in the countryside that want to expand. The small lenders included 19 village banks, four loan firms and eight rural cooperatives. At the end of last year, these rural community lenders had deposits of 430 million yuan and had issued loans of 230 million yuan.

    From its establishment through the end of 2007, Huimin Village Bank had deposits of 17.17 million yuan and issued loans of 11.24 million yuan. Of the loans, 40 percent were used to build houses and renovate water supply facilities in rural areas, 30 percent to boost aquaculture and the poultry business and 30 percent to develop planting business.

    Experts have called for additional grass-roots financial institutions, like village banks, to be set up in rural areas to provide farmers with easier access to small loans and the opportunity to deposit savings.

    "Each province should have at least one bank to provide access to small loans, just like the function of capillary vessels," said Tang Min, deputy China representative of the Asian Development Bank (ADB).