MICROCAPITAL.ORG STORY: Trade Association Boss Claims China’s Regulations Impede Growth and Calls for Wholesale Microfinance Fund

A recent article by Ms. Wang Xinyuan in the Global Times, a daily Chinese newspaper, commented that despite a growing demand for microfinance in China, government regulations are inhibiting microfinance institutions´ (MFIs) growth [1]. Government regulations state that MFIs are not allowed to accept deposits to finance micro-loans. Additionally, interest rates for MFIs are capped at four times the prime lending rate, which currently stands at 5.31 percent [2].

Mr. Bai Chengyu, secretary-general of the China Association of Microfinance(CAM), said that currently, “MFIs lack policies allowing them to expand in size and means of increasing financing,” adding that internationally, MFIs often rely on self-regulation and make loan decisions based on their own risk assessments [1, 3].

Mr. Bai has pointed to the need for a wholesale fund to pool donor funding and distribute it to local microfinance institutions. According to the MIX Market, the microfinance information clearinghouse, similar funds already exist in 34countries [4]. CAM is currently holding talks with the United Nations Development Program and the China Development Bank, which reported USD559.6 billion in assets at the end of FY2008, to form a microcredit wholesale fund [5].

The Global Times, which originally reported on this story, is published under the People’s Daily, the official news source of the Communist Party of China. The English version of the paper was launched in April 2009 as a counterpart to its Chinese version, which was established in 1993. According to Mr. Hu Xijin, “the English edition, instead of a translated version of its Chinese newspaper, is based on an independent team of reporters, editors and foreign experts…[who] cover the world from a Chinese perspective” [6].

More MicroCapital stories on microfinance in China are referenced in the Bibliography below, [7] to [12].

By: Stefanie Rubin, Research Assistant

Bibliography:

[1] Global Times. “P2P Platform to Increase Capital for Microlenders,” by Wang Xinyun: http://news.alibaba.com/article/detail/business-in-china/100191431-1-p2p-platform-increase-capital-microlenders.html

[2] Reuters. “China Unlikely to Liberalize Lending Rates in 2009,” by Langi Chiang: http://www.reuters.com/article/reutersEdge/idUSTRE5300PD20090401

[3] China Association of Microfinance: http://www.chinamfi.net/en/index.asp

[4] MIX Market: Funders: http://www.mixmarket.org/funders/by-country

[5] China Development Bank: Annual Report 2008:http://www.cdb.com.cn/English/Column.asp?ColumnId=91

[6] People’s Daily Online: “Beijing-based newspaper Global Times launches English edition,”http://english.people.com.cn/90001/90776/90882/6640215.html

[7] MICROCAPITAL.ORG STORY: Grameen Trust of Bangladesh Partners with Alibaba Group to Create Grameen China, With Initial Focus on Bringing Microfinance to Sichuan Province

[8] MICROCAPITAL.ORG STORY: Hong Kong and Shanghai Banking Corporation (HSBC) Partners with Women’s World Banking (WWB) to Launch Loan Product for Small Businesses and Rural Workers in China

[9] MICROCAPITAL.ORG STORY: Founder And Officer Of India-Based SKS Microfinance Comment On Prospects For Microfinance In China In A Wall Street Journal Report

[10] MICROCAPITAL.ORG STORY: Grameen-CPAD-Danone Micro-Credit Initiative Aids Post-Quake Reconstruction in Sichuan, China

[11] MICROCAPITAL.ORG STORY: Wokai Uses Kiva-Like Approach To Channel Funds From US Contributors To Microfinance Clients In Rural China – A Reversal In The Creditor-Debtor Relationship Of Both Countries?

[12] MICROCAPITAL STORY: Small Business And Rural Finance In China – Low Leverage Ratios