Highlight on China, Part 2: Financial Service Providers

This is the second Microfinance Gateway highlight in a series on access to finance in China. This highlight focuses on the diverse range of financial service providers actively involved in promoting financial access in rural and urban areas of China. To read this highlight in Chinese, click here. 

After years of pilot programs, microfinance in China is undergoing a transition from unregulated, small-scale donor-funded programs operated by NGOs to larger-scale commercial development led by formal regulated financial institutions. Key players in expanding access to financial services include:

• Photo credit: Jennifer Isern

  The Postal Savings Bank of China
• Rural credit cooperatives and rural cooperative unions
•  City commercial banks
• Pilot commercial micro-credit companies authorized under a new program by the People’s Bank of China
• Pilot village banks & other rural finance institutions authorized under a new program by the China Banking Regulatory Commission
• Agricultural insurance providers
• China Development Bank, providing wholesale lending to financial institutions
• Mobile banking pilots through cell phone providers such as China Mobile and China Unicom
• Larger NGO programs such as China Foundation for Poverty Alleviation, the Funding for the Poor Cooperative, and other established micro-credit institutions

In addition, international technical assistance companies, domestic microfinance research organizations, and the China Association of Microfinance are active in the growing microfinance sector in China. 

With several new players in the market, there is hope that the range of financial services will also expand beyond basic short-term lending to include diverse deposit services, money transfers, insurance, credit lines, credit and deposit cards, and other services. As described throughout this series of highlights on China, promoting diversity of access to financial services is a key objective for the central government.    

This highlight introduces four key institutions in China that demonstrate a diversity of approaches to microfinance and business models. Interviews with each organization can be accessed by clicking on the organization’s name below: 

• China Post – Interview with Mr. Zhu Dapeng, director of the Credit Department at the Postal Savings and Remittance Bureau
• China Development Bank - Interview with Ms. Wang Fei, deputy director of Microfinance Core Team.
• International Project Consult GmbH - Interview with Ms. Carol Reichelt, manager of IPC’s China program
• China Association of Microfinance (CAM) - Interview with Mr. Du Xiaoshan, director

The brief descriptions and interviews with each organization demonstrate how different service providers contribute to the innovation, diversification and institutionalization of the microfinance industry in China.

China Post

China Post was recently authorized to establish the Postal Savings Bank of China (PSBC) as an independent financial institution to provide retail financial services to the rural population. With China Post’s ubiquitous presence in rural areas and the most extensive national network of branches, the potential to reach millions of people is enormous. 

According to Zhu Dapeng, Director of the Credit Department at the Postal Savings and Remittance Bureau at China Post, “PSBC is pilot testing two lines of credit service, in addition to its traditional money transfer and savings business.” As a new entrant in the microfinance market, China Post faces challenges of building branch capacity, designing cost effective services, and applying new national collateral policies. For the full interview, click here.

China Development Bank (CDB)

As the lead government development financial institution, CDB views microfinance as a means to promote harmonious socio-economic development. In 2004, CDB began to cooperate with the World Bank and KfW to promote access to finance in China.  Through a "technology + capital" approach, CDB is “providing technical assistance to several medium- to small-sized commercial banks to help them innovate, develop internal systems, and build sustainable capacity to lend to small and micro-enterprises,” according to Wang Fei, deputy director of the Microfinance Core Team at CDB.

CDB uses “strict internal controls and standardizing credit products and procedures” to maintain cost efficiency and portfolio quality. Wang further commented that “urban credit cooperatives and rural credit cooperatives are also major potential collaborators for CDB, in addition to medium and small-sized commercial banks.” CDB has also committed wholesale funding directly to the China Foundation of Poverty Alleviation, a well-established NGO that offers micro-credit in rural areas. Wang noted two major challenges to CDB’s Microfinance Project - introducing product and technology innovation to respond better to rural market demand and building capacity of partner institutions. For the full interview, click here.

International Project Consult GmbH (IPC)

IPC is an international technical assistance agency that works with financial service providers to promote broader access to financial services for micro-, small- and medium-sized enterprises. As a partner in the China Development Bank Microfinance Project (CMFP), IPC provides technical assistance to select city commercial banks and rural credit cooperatives. To build sustainable operations, IPC works with partner institutions to “train staff in all aspects of micro and small loan operations and develop procedures and products tailored to client demand” according to Carol Reichelt, manager of IPC’s program in China. So far, the project is showing “very successful” pilot results. Going forward, Reichelt  stressed the importance of restructuring the financial institutions to set up efficient and robust lending procedures to micro and small enterprises.  For the full interview, click here.

China Association of Microfinance (CAM)

As an emerging national network, CAM consists of microfinance institutions (MFIs), national and international technical organizations, and individuals supporting the microfinance industry in China.  According to Du Xiaoshan, director of CAM, “microfinance can be viewed as an effort to build an inclusive financial system with a special focus on disadvantaged individuals, under-developed areas, and fledging enterprises.”

CAM positions itself at the “meso” level in this effort by “providing a platform for people to share lessons and experiences, offering technical assistance to build MFI capacity, and representing MFIs in policy advocacy and fundraising.” Du noted that most MFIs do not yet meet requirements to become an officially recognized financial institution, and this has constrained them from achieving significant outreach to clients or providing a range of financial services. CAM is also striving to build its organizational capacity and seeking official legal status as an association. For the full interview, click here.