The Microfinance Gateway would like to thank Dr. Xu Zhong, Deputy Director of the Financial Stability Bureau of the People's Bank of China, for sharing his views on the microfinance sector in China.
Q: What should policy makers in China do to offer millions of poor people access to financial services?
Xu Zhong: The country’s economic development calls for diversified rural financial institutions and systems. At the heart of rural finance reform is breaking the monopoly on the rural financial market, the establishment of a competitive and efficient market, and then a matching supervisory framework. It is the market that will determine the organizational form of financial institutions.
In order to offer millions of people access to financial services, the following measures are suggested:
- separating fiscal aids from commercial credit,
- opening up the rural financial market,
- establishing a deposit insurance system,
- taking prompt corrective actions when the need rises, and
- adopting a market-based interest rate regime.
Q: What are the main challenges for expanding the microfinance industry in China today, what is the potential for “leapfrogging”—building on other regional experience and moving faster?
Xu Zhong: Major challenges for expanding the mircofinance industry in China are as follows:
- Until now, China has not established an overall framework for the microfinance industry, including regulation rules, a specific supervisory institution for the microfinance industry.
- Supportive institutions for microfinance development, such as the microfinance training center, are absent.
- Last but not least, there is little success experience to learn from current microfinance institutions in China. Whereas, once regulation rules and training center for microfinance industry are in place, significant progress in this industry will be foreseeable.
Q: What will work best in terms of extending outreach?
Xu Zhong: For the purpose of promoting the development of China’s microfinance industry, three actions should be taken to encourage the diversified development of microfinance institutions:
- We should not only accelerate the development of Non-Governmental Organizations microfinance institutions for nonprofit, but also improve the sustainable commercial microfinance institutions.
- We should encourage the credit cooperatives, community banks and real cooperative financial organizations to do microfinance business.
- The same support should also be offered to large national banks, policy banks, and postal savings banks for them to engage in microfinance.
This interview is part of a four-part series on microfinance China.