Microcredit in china

microcredit in china


Nov 28th, 2006 @ 04:39 pm › Dan Harris

The China Daily recently did a story hinting that micro-lending might be coming to China soon.  The article favorably discusses Nobel Peace Prize winner, Muhammad Yunus. and his recent trip to China.  Yunus is a micro-lending  pioneer.

The article notes how Yunus said his micro-lending model could benefit the many poor people in China and quotes Yunus on how micro-lending is “not charity. It’s business that can earn money and also help lift the poor out of penury.” The article than admits that China’s banks (which are essentially government controlled), have done little to lend in rural areas:

In China, conventional banks have no interest in household credit in rural areas because of high repayment risks and operational costs. Thus, rural productivity has been hampered by a lack of access to reliable and affordable credit to purchase inputs and to invest in small, off-farm, income-generating activities.

The article mentions that “some pioneering institutions, mostly domestic or overseas non-government organizations, have experimented with microcredit in China for 10 years,” but then goes on to say that government policies and legal restrictions have made things impossible for such lenders:

But they are not sustainable because of policy and legal restriction, and insufficient funds, said Du Xiaoshan, a pioneer of micro-finance research and practice in China, and also deputy director of the Rural Development Institute affiliated to the Chinese Academy of Social Sciences.

Seven private microcredit companies in China also face the same problem, as they are only allowed to provide loans but cannot accept deposits.

According to Yunus (and

again, this was mentioned in what almost has to have been a government sanctioned article), not allowing micro credit companies to take deposits “greatly hinders their development.” Yunus went on to stress “the importance of a clear and proper legal environment and supervision mechanism.” The article then notes that “[c]urrently, China has no laws or regulations in this field.” My law firm’s China lawyers confirm this.

The article concludes by noting China is working to provide “a clear legal environment to boost the development of microcredit in China.”

This article might have been written just to mollify the West (I do not know whether if it came out in Chinese or not) or it may have been written as a kind of test balloon.  It is certainly not yet clear that China is ready to get serious about micro-lending, but this article is at least somewhat of a start.

For those interested in reading more about how Beijing limits lending in an effort to retain control, check out our previous posts entitled, “Hey Buddy, Can You Spare a Yuan — The Sorry State Of SME And Consumer Lending In China, ” and “Hey Buddy, Can You Spare a Yuan, Part II — The Sorry State of Lending in China .” Since writing those two posts back in March, the biggest change in Chinese business lending has been the enactment of new laws opening up of its banking sector to foreign banks, set to go into force in mid-December.

Foreign banks will open up lending in China, at least somewhat. It remains to be seen how much and to what effect.

Source: www.chinalawblog.com

Category: Payday loans

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