MICROCAPITAL BRIEF: Book From Asian Development Bank (ADB)—Rural Finance in Poverty-Stricken Areas in the People’s Republic of China—Suggests Reform of China’s Microfinance Industry

A new book from Asian Development Bank (ADB)—Rural Finance in Poverty-Stricken Areas in the People’s Republic of China—pushes for reforms in China’s rural finance industry, including its microfinance industry, that it argues would help small businesses and alleviate poverty.

ADB recommends repealing laws that hinder the establishment of a competitive financial market and suggests new laws are needed to support microcredit institutions, financial cooperatives and informal finance. For example, local government agencies are required by law to appoint managers of nongovernmental organizations (NGOs), including microfinance institutions (MFIs). These individuals, paid by the state, are not incented to save failing MFIs since they can simply return to their previous government positions. The lack of institutional reform in the rural finance sector has reportedly exacerbated the economic gap between urban and rural areas in China.

Other barriers to the success of MFIs in China include (1) the fact that nongovernmental MFIs must register as social groups or “non-enterprises”, legally unable to transform themselves into financial institutions without local government involvement, and (2) the requirement that MFIs keep interest rates within four times that of China’s benchmark interest rate, which stands at 5.81 percent. With no ratings agencies reporting on the microfinance industry, transparency and investment are also low. The book can be read in its entirety at: http://www.adb.org/Documents/Books/Rural-Finance-PRC/rural-finance-prc.pdf [1,2].

By John Howard-Smith, Research Associate

About Asian Development Bank (ADB): Established in 1966 and headquartered in Manila, the Philippines, the Asian Development Bank (ADB) is a development finance institution that consists of sixty-seven members, of which forty-eight are located in the region. The ADB has three strategic priorities: to foster inclusive growth, to facilitate regional integration and to ensure environmentally sustainable growth. To accomplish these objectives, the ADB uses loans, technical assistance programs, grants equity investments, guarantees and credit to private companies in member countries. The ADB reported a total capitalization of USD 56 billion as of December 31, 2009.

[1] Asian Development Bank Press Release: “Rural Financial Reform Needed to Ease Poverty in PRC, Says ADB Book”, http://www.adb.org/Media/Articles/2011/13468-chinese-rural-financial-systems/

[2] Asian Development Bank: Rural Finance in Poverty-Stricken Areas in the People’s Republic of China, http://www.adb.org/Documents/Books/Rural-Finance-PRC/rural-finance-prc.pdf

MicroCapital’s Microfinance Universe profile: Asian Development Bank (ADB), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Asian+Development+Bank+(ADB)

Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/

Similar Posts: