NEWS WIRE: China: International Finance Corporation (IFC) Official Calls China Slow on Microcredit

Source: Reuters India.

Original article available here.

ULAN BATOR, June 3 – China, the largest untapped micro-finance market in the world, is slowly introducing micro-credit but is hampered by unfamiliarity and a lack of clear regulations, an International Finance Corp official said.

China is experimenting with a micro-finance pilot, launched in 2006 by the banking regulator in the hope of stimulating lending by township and village banks, and with micro-loans to companies spearheaded by the People’s Bank of China, the central bank.

The China Banking Regulatory Commission’s programme was expanded nationwide in October 2007, and now counts 25 village banks.

Seven domestic micro-credit corporations have been established in five pilot provinces in China, and two foreign-invested micro-credit corporations were created with assistance from the IFC, said Jinchang Lai, deputy general manager of IFC’s private enterprise partnership China Program.

Many rural Chinese and small businesses rely on informal networks of pawnbrokers and acquaintances for capital to start up shops, pay schooling fees or get through difficult times.

The country has a strong entrepreneurial tradition but very poor penetration of the banking sector in rural areas.

A cultural reluctance to take on formal debt also hampered micro-finance programs, Lai told a conference in the Mongolian capital Ulan Bator at the weekend. Previous attempts to set up micro-finance in less developed regions date from the 1990s, but only about 100 projects, out of more than 200 initially, are still ongoing.

Lai cited China’s complex regulatory environment, a lack of public familiarity with micro-credit and a difficulty in hiring people with micro-credit experience as some of the obstacles to developing micro-credit in China.

Micro-finance has been around for decades, but has mushroomed in recent years, especially in Asia where nearly 100 million people have access to micro-credit, according to the Microcredit Summit Campaign, which hopes to bring micro-credit services to 175 million of the world’s poorest families by the end of 2015.

According to Standard & Poor’s, half of the world’s estimated 3 billion poor, or about 1.5 billion, are potentially eligible for loans and other micro-finance services.

Although China is the fastest-growing major economy in the world, it is plagued by stubbornly high rural poverty.

There is a wide gap in living standards between the glitzy east coast cities at the heart of an economic boom and remote inland areas where some people still live without electricity or clean water.

But it is the South Asian countries that dominate the region in terms of overall micro-finance network.

Three quarters of the top 100 Asian institutions, ranked by number of borrowers are from South Asia, the Asian Development Bank said in a report.

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