Access to Finance for Chinese Poor Households and Micro, Small and Medium Enterprises

Publication Date: 2005
Document Type: Paper (PDF)

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How can China make microfinance more accessible and widespread?

This paper argues that the micro, small and medium enterprises (MSME) can benefit from microfinance facilities, which make access to financial services easier. The paper aims to present the reader with some quantitative information about some modern ways to facilitate access to credit for poorer households and MSMEs in China. The paper discusses:

• China’s experience so far;
• The role of microfinance in China today, as a tool to foster economic and social development and to fight poverty;
• Current policy framework and reforms;
• Major constraints for small entrepreneurs wanting to access credit;
• Options for a poor household in need of some finance;
• Policy implications.

The paper predicts that:

• Microfinance will become an important poverty reduction tool in China;
• The potential for the development of a sustainable and socially aware industry seems likely, both in rural and urban environments;
• There will be risks related to the weakness of the financial system and the unfamiliarity with microfinance;
• A new expansion is likely to happen if policies will be developed to allow a wider range of financial institutions to operate;
• The liberalization of interest rates will realign formal and informal lenders, whereby credit will be better targeted and more clearly differentiated from social welfare;
• It will be useful to scale up cooperation with foreign entities, which specialize in microfinance and international organizations.