Highlight on China, Part 3: Development Partner Perspectives

This is the third Microfinance Gateway highlight in a series on access to finance in China. This highlight provides the perspectives of experts at three of the most active development partners working to promote access to finance in China: German Technical Cooperation (GTZ), United Nations Development Program (UNDP), and the World Bank. To read this Highlight in Chinese, click here.

Photo credit: Jennifer Isern

To help China prepare for a tumultuous shift in its microfinance landscape, GTZ, UNDP and the World Bank have been working with the government to promote sound policies, sustainable financial institutions, and quality financial services for greater range of clients in urban and rural areas. However, all three agencies share concerns about the future of smaller microfinance players, especially as the Chinese government continues to roll out state-sponsored microfinance services, most recently through China Post.

“The minimum capital requirements to set up a new bank are so high that the creation of new entities is almost impossible,” notes Thorsten Giehler of GTZ. Attracting investors is an even greater challenge, since, in the words of Peter Zetterstrom of the UNDP, “there are still no solid examples demonstrating the commercial viability of serving low-income clients.” Even once established, the disbursement of loans is a hurdle, as consumer credit information is not available in rural China, notes Wang Jun of the World Bank.

These and other challenges are discussed in a series of three interviews with:

• GTZ – Interview with Thorsten Giehler, Program Director of the Financial Sector Development division
• World Bank – Interview with Wang Jun, Financial Sector Coordinator
• UNDP – Interview with Peter Zetterstrom, Program Manager on the Social & Economic Development Team

German Technical Corporation (GTZ)

In an era that might soon become dominated by large government players such as China Post, Thorsten Giehler,argues that the central challenge for the Chinese government is to nurture the growth of smaller finance players through policies that create “a new window or tier in the banking law reducing drastically the entry barriers for new financial institutions and the private sector.” He notes that “the rapid development of China shows that informal sources [of microfinance] could provide an alternative,” despite the fact that “the Chinese banking sector and the capital market are still underdeveloped.”

With these issues at the fore, Giehler concludes that the most urgent efforts should be made in encouraging new entrants in the financial market, establishing a “market-oriented agricultural policy” and developing “agricultural credit insurance products.” For the full interview with Mr. Giehler, click here.

The World Bank

Wang Jun starts out by stating that “enormous changes have taken place in the past two years in the area of microfinance” in China.  These changes have the potential to transform China into “the largest market for commercially-sustainable microfinance” in the future.

In the face of these exciting changes, Wang points out that important challenges still remain, such as the “interest rate ceiling for rural credit cooperatives,” lack of diversified financial service providers, a void in the form of a national credit system for all customers, and a still developing “regulatory framework for rural finance.” For the full interview with Mr. Wang, click here.

United Nations Development Program (UNDP)

According to Peter Zetterstrom, the Chinese government has made an “important shift in approach to developing the financial sector” by prioritizing “extending access to finance in rural areas.” He argues that “the role of government in China …must be to ensure that the legal and regulatory environment is sufficiently prudential as to protect the stability of the financial system… and [is inclusive of] strong elements of dialogue with the main stakeholders so as to understand what they need to develop and better service their clients.”

With this in mind, Zetterstrom says “donors should continue to advocate change vis-à-vis the government to make the legal and regulatory environment more conducive to independent, financially sustainable microfinance.” For the full interview with Mr. Zetterstrom, click here.