An Organizational and Institutional Analysis on the Reform of Taiwan’s Agricultural Financial System
Date Issued
2012
Date
2012
Author(s)
Huang, Ying-Tzu
Abstract
The Credit Departments of Farmers’ and Fishermen’s Associations (CDFFAs) have been the core part of Taiwan’s agricultural financial system. The funds they provided help Taiwan’s agricultural and rural development. However, since the liberalization of Taiwan’s financial market in 1980s, the banking industry has become highly competitive and its profit margin lowered accordingly. Under this circumstance, CDFFAs’ market share of deposits and loans became declining, their non-performing loans rose, embezzlement and other illegal activities were observed at CDFFAs. In 2003, new Agricultural Finance Act was passed by Legislative Yuan aiming to reform the agricultural finance system in Taiwan. Under this Act, a two-tier agricultural finance system was formed with Agricultural Bank of Taiwan (ABT) founded in 2005 as the upper tier and the CDFFAs the lower tier.
This study uses Transaction Cost Theory, Principal-Agency Theory and Property Rights Theory to analyze the new agricultural finance system. Firstly, we introduce the problems of the old agricultural finance system and conclude that the small scale of CDFFAs, the poor design of the CDFFAs’ electoral system, the abolition of Farmers’ and Fishermen’s Associations’ paid-in-capital system, the lack of agricultural financial legislation, the diversified authorization of the supervision power, the malfunction of the traditional agricultural banks, and the ineffective financial examination system are among the causes of the problem. Secondly, we introduce the new agricultural financial system and analyse the differences between the old and new systems from the perspective of organizational economics. Thirdly, we evaluate the competitiveness of the new agricultural financial system from the perspective of the scope of CDFFAs’ business, their scale of economy, and their financial performance and analyze the problems with the existing supervision mechanism and the responsibilities of the Authority.
This study concludes that in order to enhance the competitiveness of Taiwan''s new agricultural financial system, vertical integration of ABT and CDFFAs or strategic alliances between these two institutions are necessary. Further discussion on the organizational issues related to vertical integration and strategic alliance are also provided.
Subjects
Organizational Economics
Agricultural Finance
Credit Department of Farmers’ and Fishermen’s Associations
Agricultural Bank of Taiwan
Agricultural Finance Act
Type
thesis
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