Microfinance in China: Re-awakening the Dragon

With 17% people living below US$1 a day and 47% below USD $2 a day, China, with a population of 1.3 billion, presents a very large market for microfinance. Outlining the salient features of the microfinance market in China, the presentation mentinos:

• About 900 million live in rural areas;
• Only 25% of the rural population has access to formal credit;
• There are 25.7 million microenterprises;
• The development is uneven, with the western and center regions lagging behind.

The presentation further lists the various organizations, rural and urban, which have been carrying out microfinance activities in China. These include:

• Rural: Rural credit cooperatives, Agricultural Bank of China, semi-formal MFIs, pawn shops and other informal sources;
• Urban: State owned commercial banks, foreign banks, urban credit cooperatives, credit guarantee companies, pawn shops, and other informal sources.

Most of the microfinance projects in China were launched in early 1990s, and concentrated in the western and central areas. Among an estimated number of 300 programs, most worked on the Grameen model, with few becoming profitable eventually.

The presentation further elucidates the key challenges in the Chinese microfinance sector:

• Low regulation;
• Interest cap in rural areas, recently liberalized in urban areas;
• Weak institutional capacity and profitability among the MFIs;
• Local government interference.

Concluding, the presentation lists the critical points that have the potential to promote microfinance in China:

• Huge unmet demand for financial services;
• An average GDP growth of 9%;
• National political will towards rural development and poverty reduction.