MICROCAPITAL STORY: Microfinance Institutions To Debut In China’s Zhejiang Province

In China’s Zhejiang province, small and medium enterprises’ growing demand for capital has compelled the Chinese government to expand microlending services into the province, according to an anonymous source quoted in a Shanghai Securities News report.

Hitherto, small and medium enterprises in the Zhejiang province have relied on private commercial banks to obtain loans. But with China’s tightening monetary policy, securing a loan through banks has become increasingly difficult for such firms, and they are now seeking microloans.

It is not clear what form of legal status the MFIs involved in the expansion plan will embody. According to a 2005 report on Chinese microfinance, MFIs operating in the country generally assume one of three legal structures: nonprofit MFIs backed by International NGOs, government-administered microlending programs, and recently, commercial “rural financial institutions” (p.4).

The microfinance expansion plan will include heavy regulation governing lenders. Foremost, the number of microlenders operating in one county will not exceed one or two organizations. In addition, potential microlenders will have to meet financial requirements, including net assets of at least CNY 50 million (USD 7.3 million), an asset-liability ratio less than 70 percent, and three consecutive years of profitability with corresponding revenues of at least CNY 15 million (USD 2.2 million). Beyond financial requirements, microcredit organizations will be required to ensure diversity in their borrowers.

By Ryan Benson

Additional Resources:

China Daily: Microcredit firms may debut in Zhejiang, July 16, 2008.

Microfinance Gateway: The Regulatory Environment For Microfinance In China, Du Xiaoshan, Rural Development Institute, Chinese Academy of Social Sciences, April 2005.

World Bank: China’s Emerging Microfinance Industry, Mike Goldberg, January 1998.

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