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Micro Finance in China
Transcript of Micro Finance in China
Lives in the south of the Shaanxi
Main crop: grain
Family: wife & child
Aim: to acquire a loan for green technologies Complications Long-term impact in China MF is an attempt to increase financial access to all rural households
Urban-rural income gap reduction
If properly revitalized, huge potential of RCCs The provision of both financial and non-financial services (loans, credit, deposit, insurance, training) to proactively generate income rather than foster dependence on external aid Small loans, ranging from 5-5,000 USD Provision of opportunity for self-employment Target Market Low-income households Women Disadvantaged persons Micro entrepreneurs Ultimate Goal - To provide support to people who would
otherwise be excluded from the financial sector
- To encourage profitable & efficient allocation
of resources and to spur entrepreneurship Both of the above issues are important factors for societies transitioning from rural to industrial economies & for poverty-alleviation Why Microfinance? Why China? China - Microfinance is a globally prominent means to the alleviation of poverty
- China is home to 17% of world's poor (200 mill. people) [income gap]
- Chinese microfinance is steadily on the rise (60% year-to-year recent growth rates)
- 2023 Rural Credit Cooperatives by the end of June 2010 (5.5 trillion RMB)
- As of 2012: 5,878 micro credit companies in China
- MF will be crucial for overcoming the Chinese dilemma: sustained economic
growth and poverty-alleviation (to uphold the government's legitimacy)
- Ironic duality between essentially capitalist practice of micro finance and Chinese
communist government- and societal system
- Microfinance and its role in China as an emerging world power & Microfinance History of Microfinance in China Major Microfinance Institutions in China I would like to invest in high-yield grain and fertilizer Further Considerations Choice of Institution Outcome Process Flexible and simple demands and conditions Phase I:
experimenting Inception in 1993 as part of govt.-scheme for poverty-elimination First trials built on the Grameen Model Reliance on international donors Phase II:
expansion Promotion of microfinance initiatives by national and local governments (1996) Phase III:
formalization Development of a formal micro finance sector (2000s) Chinese government-subsidized initiatives Micro credit companies & Village Township Banks Poverty-alleviation loan system (ABC, ADBC & poverty-alleviation bureaus)
Rural Credit Cooperatives (RCCs)
Small-scale projects & NGOs (Xiaoshan, 2005) (PlanNet Microfinance, 2012; Sandeep, Jiyeon, & Marc, 2005) (Park & Ren, 2001; Xiaoshan, 2005) (Clydesdale & Shah, 2013; Rahman & Luo, 2011; Xinhua, 2012) (PlaNet Microfinance, 2012; Sandeep, et al., 2005) (Sandeep et al., 2005) References Clydesdale, H., & Shah, K. (2013). Microfinance in China: micro vs. Mandarin. Asia
Society.org. Retrieved 16.03.2013, from http://asiasociety.org/education/students/global-topics/microfinance-china-micro-vs-mandarin
Park, A., & Ren, C. (2001). Microfinance with Chinese characteristics. World Development,
PlaNet Microfinance (2012). Backdrop of microfinance in China. PlaNet Finance.org.
Retrieved 16.03.2013, from http://www.planetfinancechina.org/resource-center/microfinance-in-china
Rahman, W., & Luo, J. (2011). The development perspective of finance and microfinance
sector in China: How far are microfinance regulations? International Journal of Economics and Finance, 3(1), 160-170.
Sandeep, B., Jiyeon, P., & Marc, W. G. (2005) Microfinance in China & India. Economics
in Developing Countries: INSEAD.
Xiaoshan, D. (2005) The regulatory environment for microfinance in China. Essays on
Regulation and Supervision: Vol. 11. College Park:
Rural Development Institute of the Chinese Academy of Social Sciences.
Xinhua (2012). Number of China's micro-lenders rise 64%. China Daily Online. Retrieved
16.03.2013, from http://www.chinadaily.com.cn/bizchina/2012-02/20/content_14651575.htm Attributes of Microfinance Analysis
o Need to deal with China's main short-term problems: Real estate bubble and massive export capacity
o Lack of education/supervision Role of the Government Future: Creation of local permanent MFI institutions
Need of increased fiscal decentralization
Separate regulating authority for the MFIs as opposed to commercial banks
Policies governing micro finance are weak:
comprehensive framework needs to be further developed
Non-financial institutions should be able to provide ensured saving, insurance and money transfer systems
Reform and transformation of the RCCs
Establish a national association of MFI institutions Problems of China's Micro finance System Problems faced by non-financial institutions China is tightly controlled
Inexperienced and lacking procedures for acquiring long-term, authorized legal status, etc.
Full dependence on Plan China: considered the main financial source of the whole MFI system-> shortage of funds Lack of supportive environment & the absence of regulations & inspections
Strict control over savings account, causing:
1. New institutions/projects are unable to get
the working capital needed by saving deposit
2. Deposits from rural areas tend to flow out to
investments in urban or industrial projects o Not complex to apply for and receive
o New growth of businesses/local community
o MF targets those excluded from the system (75%)
o Repayment in smarter installments - Communist ideology
- Land titles
- Geographical situation
- Insufficient amount of loans granted
- Limited additional support - Repayment methods
- Regulations (conditions)
- "Side effects"
- Spent correctly?
- No insurance provided - Availability of on-location support
- Reliability of institution
- Eligibility requirements o NGO is the provider,
rather than a bank o MC/MF only addresses
half of the problem
o Influence of Chinese government
o Unfair selection of recipients
o Potential for bankruptcy (44%)
o Government imposes high taxes and fees on RCCs
o Little information on asset portfolios etc.
- Farmer applies for loan (few days)
- Distribution of loan
- He can buy fertilizer
- He has to repay the loan
quarterly to MSP's office
rather than the loan officer
collecting installment from
the village After choosing the organization: AIS4127 - Poverty & the Politics of Aid
Mirella Recchiuti (ID: 40046820)
Andrea Cabañero (ID: 40049557)
Timea Rüb (ID: 40048468)
a) Poverty alleviation loan system
b) The RCC system
c) Small-scale programs/NGOs This can cause complications for farmers
or loan requesters Options: Choice depends on: Final choice: RCC (PlaNet Microfinance, 2012)