Microfinance, Poverty Alleviation and Financial Reform in China

This paper assesses the potential role of microfinance for poverty alleviation and financial reform in China in the light of China's microfinance experience and ongoing changes in China's economic, institutional, and policy environment.

The paper informs about:

• The beginning of microfinance movement in China in 1994;
• The positive performance of a few microcredit programs by small-scale NGOs;
• Economic changes occurring in China, especially those affecting the poor and their implications for the potential for microfinance programs on the demand side;
• China's financial regulatory environment;
• The performance of China's rural financial institutions;
• The impact of recent reform initiatives, which shape the feasible space for operating microfinance programs on the supply side.

Further, the paper argues that:

• The uncertain legal status of NGOs, a strict financial regulatory environment, and inadequate financial management capacity prevent microfinance program expansion;
• Changes in credit demand associated with economic restructuring suggest that microfinance is not well-placed to lead China's poverty alleviation efforts.

Finally, the paper discusses the role that microfinance should play in future in poverty alleviation and financial reform in China.