Press Coverage
Caijing Magazine
China's First Microcredit Bank Just Around the Corner? A recent visit by Muhammad Yunus, recipient of 2006 Nobel Peace Prize and founder of the Grameen Bank in Bangladesh, has renewed interest in the establishment of a micro-credit bank in China. During Yunus's visit, the China Banking Regulatory Commission invited the Grameen Bank to extend its operations to China.Ý While such a move would not be possible under current Bangladeshi law, Yunus suggested China establish a small-credit market open to private investors, a move which looks increasingly possible as regulatory officials signal they are considering licensing banks to provide small loans to people in poverty-stricken areas.Ý With the exception of Tianjin's Bohai Bank in 2005, the central bank and the Regulatory Commission have not issued any new banking licenses in the past ten years. Official thinking has been that financial reforms should focus on restructuring existing institutions, rather than establishing new ones. Starting in 1999, banking reform led to the disappearance of county-level branches of state-owned commercial banks.Ý In the years since, while restructuring has facilitated the stunningly successful IPOs of the Bank of China, the China Construction Bank, and the Industrial and Commercial Bank of China, these successes have made the deterioration of rural financial services all the more glaring. The central bank has poured billions of yuan into rural credit cooperatives, but their financial health has continued to worsen and they largely failed to provide farmers with loans and other services that they badly need. In 2005, some pioneering micro-credit companies emerged under the guidance of the central bank.Ý However, cautious policy-makers have so far prohibited these companies from taking deposits, a restriction that, for obvious reasons, has severely limited their development.Ý Although the central government emphasizes the importance of rural financial reform and intends to open the rural credit market to both domestic and foreign investors, concrete measures and regulations have yet to be put in place. The central government is now focusing on the "New Socialist Countryside Construction," a major initiative to alleviate rural poverty. But policy makers have so far emphasized only central government support and failed to realize the importance of a healthy rural financial syste. Local governments are asking for billions of yuan in debt-relief for rural areas.Ý Some policy-makers have even proposed that the ambitious initiative be funded through bonds issued by the Ministry of Finance, estimated to be worth trillions of yuan. These propositions cannot help establish a sound and efficient rural financial system. Some analysts have pointed out that micro-credit may be an important part of the answer rural China is looking for. HuangYi, director of the CBRC Department of Supervisory Rules and Regulations, has said that Yunus's efforts to provide loans to poor people without collateral, "make Chinese bankers blush."Ý Huang Yi cited a remark once made by former U.S. president Bill Clinton that the financial industry is a service industry which should provide inexpensive and convenient products to both the rich and the poor. Huang also pointed out that China should borrow from Grameen's model instead of unquestioningly import its practice as a whole, as there are major differences in China and Bangladesh's specific circumstances. Wang Jun, a senior finance expert at the World Bank, warned that policy-makers should be cautious about setting up any micro-lending policy as there are still many unresolved questions about micro-finance. Whether poor people can afford high interest rates, how micro-credit companies can lower costs, whether competition should be introduced into the market and what the government can do to boost the development of rural financial services all remain touchy subjects. Jennifer Isern, a micro-finance expert at the World Bank's Consultative Group to Assist the Poor (CGAP), told Caijing that reductions in interest rates are achieved through a competitive market, citing Bolivia's example, where micro-credit interest rate decreased to 20% from a high level of 70 - 80% due to competition. Only when micro-credit companies do not benefit from government subsidies do they have the incentive to lower costs, develop themselves and expand the scale of service to poor people, Isern explained. She stressed that transparency is critical: transparency not only makes supervision easier, it helps donors, investors and loan applicants make sober judgments about the risks and returns.
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Press Coverage 
