Microfinance in China is poised for a significant expansion as the government, Non-governmental Organizations (NGOs) and commercial banks begin to explore ways to provide the country's most impoverished people with greater access to credit.
According to Bai Chengyu, secretary general of the China Association of Microfinance, after 10 years of development, microcredit has entered a transition phase and is now moving "from experiment to large-scale commercial development."
Microcredit has a long history in Asia, dating back to 1976 when the Grameen Bank in Bangladesh began providing small loans primarily to women in small groups, a segment of society too poor to qualify for credit from the banks. It started in China in the mid-1990s, when the United Nations Development Program (UNDP) and the World Bank began promoting the concept in cooperation with Chinese organizations.
Microfinance may include several types of financial services, including deposit taking and insurance, while microcredit normally refers to small loans of between 1,000 yuan and 3,000 yuan ($125-$375). The terms are often used interchangeably in the media.
Many are hoping that microfinance can give a boost to rural China, which today faces enormous problems. Some 30 million "relatively" poor people survive on less than one dollar a day, and another 30 million people live in "absolute poverty" of less than 25 cents a day. The vast majority of these are in the countryside, where there is a huge gap in living conditions and public services, such as medical care and education, compared to urban areas.
A World Bank report last October argued that there was a strong link between weak access to credit and low incomes. People involved in microfinance say that a small loan of $100 to buy animals or seeds for planting can make a major difference for a poor family, and a series of loans within a community can transform it.
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