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Home >> Business
UPDATED: 08:11, October 27, 2006
Microcredit not working in China, new initiative needed
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Without a microcredit of 20,000 yuan, Shan Xinhui, a laid-off woman, would not have been able to start her own business and today boast fixed assets worth more than two million yuan.

At the 2006 China Banking Association-Citigroup Micro-entrepreneurship Awards Ceremony, Shan, from the western city of Yan'an in Shannxi Province, showed her appreciation for the government and the microcredit fund that gave her the seed money.

But, in obtaining a microcredit, Shan was one of the lucky few.

Statistics shows that only 27.3 of China's rural households have benefited from microcredits provided by rural credit cooperatives. The total value of microcredit loans distributed by over 100 microcredit institutions is merely one billion yuan.

Noted Chinese economist Mao Yushi said at the ceremony: "Although China's government has achieved a great deal in poverty reduction, there has been no obvious progress in the operation of microcredits."

"A lack of funding and the unclear legal status of microcredit institutions have caused a terrible bottleneck in Chinese microcredit," said Du Xiaoshan, an expert from the Chinese Academy of Social Sciences.

"Poor business capacity, unproven operational models and a shortage of competent professionals are adding to the problems," he said.

Du Xiaoshan told Xinhua that China's finance industry has to get rid of some mistaken notions.

"In other countries, microcredit institutions keep providing new loans to people with good track records, but in China people can only get loans once," he said.

"The poorest people have the best credit, because they know the value of borrowed money," said Du.

Dr. Muhammad Yunus, winner of the 2006 Nobel Peace Prize, also criticized China's microcredit system.

In a meeting with Wu Xiaoling, governor of the People's Bank of China, the central bank, he questioned China's practice of allowing microcredit institutions to issue loans but not allowing them to take in saving deposits.

Wu admitted that serious financial risks in rural areas had led the regulator to stop issuing banking licenses in recent years.

Mao Yushi suggested that banks such as the Agricultural Development Bank could provide low-interest-rate loans to rural credit cooperatives, who would then give microcredit loans to the poor.

"We must find a way to put the operation of microcredit institutions on a sure footing. Otherwise no competent professionals or investors will join the cause," said Bai Chengyu, chairman of the China Association for Microfinance.

A total of 113 people received this year's Micro-entrepreneurship Award at Thursday's ceremony.

Source: Xinhua

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