MICROCAPITAL STORY: Citigroup Opens Two Micro-Credit Firms in China Following Recent Rural Banking Initiatives by HSBC Holdings and Standard Chartered in the Region

In early October, Citigroup Inc, a New York-based multinational financial services firm, announced that the China Banking Regulatory Commission (CBRC), a Chinese government agency responsible for regulating the banking sector, approved Citigroup’s plan to open two micro-credit firms in Hubei, a rural province in China. The two institutions will be established in Gong’an county and Chibi city sometime in the next few months. China Daily implied that Citigroup’s move is meant to compete with the Chinese rural banking outlets of two London-based international banks, HSBC Holdings and Standard Chartered, in China’s financially underdeveloped regions.

The announcement occurred in an environment of relaxed government constraints meant to induce more capital flows from private enterprises to small businesses and petty manufacturers. In 2007, HSBC opened the first foreign-invested rural bank in Suizhou, Hubei province with an initial capitalization of CNY 10 million (USD 1.4 million). Standard Chartered offered a USD 2.8 million loan in January of 2008 to the China Foundation for Poverty Alleviation (CFPA), a Chinese non-governmental organization (NGO) with a microfinance arm.

Founded in 1812, Citigroup Inc (NYSE:C) is a multinational banking corporation headquartered in New York City that operates in more than 100 countries. Total assets as of September 30, 2008 were USD 2.1 trillion. As of October 29, 2008, its return on assets was -0.95 percent and its return on equity was -19.39 percent. Its total debt-equity ratio was 593.65 percent. For more information, please see Microcapital’s June story on a USD 10 million loan to a Bangladeshi microfinance institution and our May story on a Citigroup bank’s microfinance initiative for small and medium-sized enterprises in Poland.

Established in 1990, HSBC Holdings is currently the fourth largest bank in the world in terms of assets (USD 2.3 billion), second largest in terms of sales (USD 146.5 billion), largest in terms of market value (USD 180.8 billion) and the most profitable bank in the world with USD 19.1 billion in net income last year as of April 2, 2008. It trades under the ticker symbols HSBA in London and 0005 in Hong Kong. As of October 29, 2008, its return on assets was 0.73 percent, and its return on average equity was 12.87 percent. Total debt-equity was 206.48 percent. HSBC provides microfinance business in many Asian countries, including the Philippines and Malaysia. For more information on HSBC’s microfinance investment activity in Asia, see the Microcapital Monitor’s 2006 report. Click here to learn more about HSBC’s microfinance projects across the globe.

Established in 1853, Standard Chartered is a British bank headquartered in London with operations in more than seventy countries. Ninety percent of the bank’s profits come from Asia, Africa and the Middle East, and its market capitalization totals GBP 12.97 billion (USD 20.9 billion). It trades on the London Stock Exchange under the ticker symbol STAN and in Hong Kong under the ticker symbol 2888. As of October 30, 2008, its return on equity was 16.41 percent and its return on assets was 0.99 percent. Total debt-equity was 92.29 percent. To learn more about the bank’s microfinance involvement, please see the Microcapital stories on a USD 45 million investment in Standard Chartered and Standard Chartered’s sponsorship of the 2008 Global Microfinance Investment Congress.

The China Foundation for Poverty Alleviation (CFPA) is a Chinese NGO started in 1989 and headquartered in Beijing that works in the field of poverty reduction. CFPA started a separate microfinance program in 1996 that provides microloans, training and consulting to micro-borrowers through its ten microfinance branch offices in rural China. As of December 31, 2007, CFPA maintained approximately 24,735 borrowers and a gross loan portfolio of USD 9.6 million. Its return on assets was -0.85 percent and its return on equity was -1.44 percent. Total debt-equity ratio was 105.25 percent. The MIX Market, the microfinance information clearinghouse, rated CFPA three out of five stars in terms of its level of information disclosure

Additional Resources:

China Banking Regulatory Commission

China Daily: “Regulator gives nod to Citigroup”

Citigroup Inc

Microcapital Monitor: “HSBC Shows Interest in Expanding Microfinance Investment Activity”

Microcapital Story: “Citibank Bangladesh Provides Microfinance Institution ASA of Bangladesh with USD 10 million in Financing”

Microcapital Story: “International Finance Corporation (IFC), a Member of the World Bank Group, to Invest $45m in Britain’s Standard Chartered Bank to Expand Microfinance in Africa and Asia”

Microcapital Story: “Poland’s Citi Handlowy Launches Microfinance Initiative ‘CitiBusiness for Start Ups’ to Assist Small and Medium-Sized Enterprises (SMEs)”

Microcapital Story: “Review of the 2008 Global Microfinance Investment Congress in New York Sponsored by Standard Chartered Bank and Presented by PlaNet Finance”

Microfinance Gateway: “China Approves Citi’s Plan to Open 2 Microcredit Firms”

Microfinance Gateway: “HSBC Becomes First Foreign Bank to Launch Rural Bank in China”

The MIX Market Profile: China Foundation for Poverty Alleviation