What is the meaning of township interest compensation transaction?

The interest compensation transaction in villages and towns refers to a financial transaction mainly based on lending. Because the coverage of financial institutions in township areas is smaller than that in urban areas, it is more difficult for small and micro enterprises and individuals to raise funds, so it is necessary to obtain funds through loan transactions between township residents. The interest rate of township interest compensation transaction is relatively high, and there are still some risks, so it is necessary to establish a relatively stable credit relationship between borrowers and thus establish trust.

The transaction of supplementary interest in villages and towns is mainly conducted among residents, and the source of funds is mainly idle funds from residents. Compared with the loans of traditional financial institutions, the township interest payment transaction has certain flexibility. Borrowers can freely choose the borrowing time and amount according to their own needs and repayment ability, and the credit relationship between borrowers is relatively good, and the average default rate is low. Therefore, for some enterprises and individuals who cannot obtain funds from traditional financial institutions, the township interest payment transaction is a good choice.

The risks brought by the township interest payment transaction are mainly credit risk and liquidity risk. Because the source of funds is mainly idle funds of residents, the liquidity of funds is poor, and when borrowers face repayment difficulties, debt default may occur. Therefore, the transaction of supplementary interest in villages and towns needs to be standardized and supervised, and an effective risk control mechanism should be established. At the same time, enterprises and individuals need to fully evaluate their repayment ability before borrowing, and establish a credit relationship with borrowers, thus reducing credit risk.