Microfinance in China and Development Opportunities

Publication Date: 22 Oct 2003
Published by: GTZ - Deutsche Gesellschaft für Technische Zusammenarbeit GmbH
Document Type: Paper (Microsoft Word)

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Exploring development possibilities for the microfinance sector in China

This paper examines the microfinance sector in China and explores the different development opportunities available in the region. It highlights that the Government has three major concerns towards microfinance development and these are:

1. Conformity in interest rate;
2. Institutional setup;
3. Savings mobilization.

The paper describes in detail the functioning of the Rural Credit Cooperative (RCC), the main organization handling all the microfinance related operations in China.

Further, it highlights some of the constraints faced by the sector that make sustainability of microfinance difficult within a limited timeframe. The constraints are:

• Strict entry barriers to establish financial institutions (FIs) specialized in microfinance;
• Regulatory and organizational constraints of existing FIs to downscale their services to provide credit access to low-income and poor households;
• Ambiguous legal and institutional status of non-government organizations (NGOs) and illegality of their handling finance-related activities;
• NGOs trying to act as bankers.

Finally, the paper recommends the following:

• Build field success story and undertake comparative research/analysis to support policy advisory objectives;
• Undertake institutional approach instead of simple project approach, to promote institutional capacity building and local ownership strengthening;
• Focus on capacity building instead of grant or generous credit line.