PlaNet Finance China Country Overview

Overview of the Chinese microfinance sector
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This paper provides an overview of the microfinance sector in China. China has made great developments in reducing poverty, however the income gap has been widening as wealth grows in selected areas. China's poor are becoming more concentrated in the west, in regions that have been traditionally difficult to access. At least 228 million rural inhabitants are unable to obtain financial services, but the challenge of addressing this problem has recently garnered considerate attention from the Chinese government. The paper states the following:

  • Microfinance organizations legal status is either unclear or prevents them from expanding their funding. Many of the smaller organizations are now administered under government project offices, but have ambitions to clarify their legal status and become eligible for investment or financing;
  • Commercial microcredit companies (MCCs), set up as limited liability companies, are able to provide credits but are unable to accept deposits, so these are reliant on replenishment through outside financing or investment on a scale that can sustain growth in this credit-hungry market;
  • Regulatory constraints and significant barriers to entry into the small loan market mean that most existing microfinance organizations will need to transform themselves into regulated financial institutions sooner or later; such a mechanism for transformation has existed since 2006 under the China Banking Regulatory Commission;
  • It could also well transpire that these experienced small organizations will ally themselves to work alongside banks with a regulated organization; such new partners could be banks willing to move into the countryside and into the smaller-loan market, some of the better-managed rural credit cooperatives, or the Postal Savings Bank of China.

The paper also states that opportunities exist for the development of micro-insurance in China as the China Insurance Regulatory Commission (CIRC) began a micro-insurance pilot program in nine provinces in June 2008.Finally, the country note discusses the continuing commercialization of the microfinance sector and the investment conditions, regulations, and process for NGO microfinance organizations, MCCs, village banks, rural credit cooperatives (RCCs), and city commercial banks (CCBs).

[Adapted from the author's abstract]

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