Wednesday, March 12, 2014

Microfinance: an untapped Chinese market

Microfinance in China has the potential to become one, leading innovative approach to alleviate poverty and improve rural development and regional economic. This report takes a closer look at how the Chinese microfinance model as it appears, this time the results of the model, and the final solution to the problems and potential untapped markets by foreign investors.

Current market

Despite rapid economic growth in China, with many development and wealth unfairly partitioned states across the country. By Planet Finance China, a non-profit organization that aims to promote and support the microfinance sector, "an estimated one-third of the [Chinese] people do not enjoy access to the types of services finance. "Most traditional banks in rural areas see financial service offerings for those who have no individual ownership of land as a business opportunity that is not attractive. An individual who did not own land can not offer guarantees the right, giving him financial services is seen as a high-risk, regulated assets.

This obstacle to financial services has led to a lack of working capital loans for the sole owners of the business owners, farmers, agri-business and small (ie lower links of the supply chain). Speculative financing necessary to operate and grow the business, and the loss will lead to a slowdown in rural and regional development by reducing the ability of small businesses to compete with more modern companies.

Microfinance has not reached its potential. Not because of lack of demand, but because of incomplete environmental regulation and industry misconceptions.

Microfinance institutional models of China

Currently, China hosts the micro finance institutions: the informal, such as borrowing and lending between families and moneylenders with low interest or interest-free, and the officer, which means the government will carry out A microfinance related transactions. There are two types of them in China:

Micro Credit Company (MCC)

* Beginning in the mid-2000s;

* Local government is playing the role of the MCC in some districts;

* Runs more remote, local, limited to one place;

* Composed of 100 percent private equity;

* Provide Only services loans, can not accept deposits;

* Offer loans under RMB5, 000.

Village and Township Bank (VTBs)

* Beginning in 2006;

* Operating in the small town, in a limited area;

* Collected one or more financial institutions that are no less than 20 percent of the equity of each shareholder and other non-bank with a maximum of 10 percent equity;

* Provides loan services, can accept deposits as a financial agency;

* Offer loans as high as RMB500, 000 and the low price of RMB5, 000 in practice.

At the end of 2006, China Banking Commission control and the People's Bank of China jointly issued guidelines that allow the MCC to VTBs transformation, to provide incentives for more public financial institutions to participate in development of the rural economy. The new rules require a banking license in the country to have VTBs ownership of at least 20 percent, and further stated that the remaining share will not be more than 10 percent for each of the non-financial institutional investors.