Micro-credits in China ¨C a view from the field
The questions abound in interviews with the press and other interested parties:
will micro-credits in China ever have a meaningful impact on poverty? Are there enough small projects to make a difference? Will the existing PBoC pilots become more oriented to classical micro-credits, or will the drive to sustainability keep loan sizes big? Is it impossible to satisfy local borrowers with classical micro-loans, borrowers who are constantly pushing up loan sizes? Will microfinance will survive its own pilots? Can the current village bank shareholder structures allowed under the CBRC become workable? What is the best model of micro-credits for the poor rural areas in virtually cashless societies? How do we get government support for micro-credit initiatives in areas caught in poverty traps with depleted environments, without these government supporters feeling somehow compelled to interfere with operations?
Change ¨C the one constant
One thing all can agree on, though, and that is that the environment for micro-credit activities in China has been in a constant state of change for the past two years£¬sometimes driven along by international initiatives (such as the Year of MicroCredit in 2005, and the visits of Prof. Muhammad Yunus to the regulatory authorities in 2006 and 2007), and sometimes driven along by China¡¯s own needs for remedies for certain domestic problems.
Since the first tentative microfinance experiments started up (usually under government auspices) in the late 1980s and early 1990s, the big issue was always legal status. Early microfinance projects started by international agencies including the UNDP and UNICEF, and others, did not usually have a legal status other than being registered with the local government under a Project Office; some of these converted themselves into shetuan, or community not-for profit development associations. Later pilots, such as those that have grown up under the wing of the PBoC¡¯s initiative, have allowed micro-credit entities to register as regular limited liability companies if they can get all the requisite approvals. Up until today, the nature of legal status has continued to be a sticky issue for players negotiating with the authorities in China.
Going with the Flow of Policy
The campaign known as the ¡°New Socialist Countryside¡±, whose details were publicly announced in early 2006, has had a huge impact on policy direction in China. Its aims are to redistribute resources and rebalance incomes across a rising Gini Co-efficient by making the agrarian population more affluent. Among other things, it has inspired the support and courage needed to drive forward both the new generation of microfinance pilots projects of the PBoC, and the set of speeches and regulations released over the past half-year by the China Banking Regulatory Commission (CBRC).
Courage is needed for many reasons. The shadow of rural finance scandals that wiped out the savings of thousands of farmers in the mid-1990s still looms over the sector. The many layers of ¡°non-joined-up¡± government that need to discuss and approve new ventures and their business scopes is still cumbersome; and not all of the different departments are as yet working together as ¡°harmoniously¡± as desired. There is a genuine lack of management skills at the grassroots levels and little knowledge in rural areas of what good governance looks like. Opportunities for formalized training are too scarce for the growing number of pilots and village banks.
Domestically invested pilots initiated by the PBoC have gradually taken shape (see http://www.pfchina.org/en/press-ngo-micro-credit/ngo-news.php?id=6); important international players such as Accion and Microcred are both on the point of launching their pilot companies.
Many of the changes have been forced by the virtual evacuation of financial service organizations from the less affluent rural areas. Subsidies and support mechanisms have fallen away from banks and rural credit cooperatives overloaded with non-performing loans; this sector has shrunk as institutions that cannot climb out of their bad debts close down. To address this lacuna, the PBoC and the CBRC have been trying to find new financial service delivery models and structures that will encourage financial institutions into the countryside to forge partnerships with local communities handling community funds.
(To be continued.)