Microfinance Case Study --Suitable model in China

Topics: Poverty, Rural, World Bank Pages: 8 (1893 words) Published: October 11, 2013

Microfinance Case Study
--Suitable model in China

Presented by Yonghan Chen
Present to Glenn Francis
Date: June 2, 2013

Table of contents

Executive summary3

Problem Statement4

Data analysis5

Key Decision Criteria8

Alternatives analysis8


Action and Implementation Plan 10


Work Cited13


Executive Summary

Since Garmeen bank model is conducive to reduce poverty, more and more developing countries accept Microfinance project as a tool to help rural people in their own countries. However, this case study demonstrates the bottleneck of Microfinance project in China, which can be concluded as implementation of government policy, working structure and lack of non-banking activities. Take the essence and discard the dregs of Indian experience, China has to apply Garmeen model into Chinese model. According to analyzing exist data, I present three alternatives to solve the problem. Moreover, after recommendation of alternatives, I provide an action plan, include but not limited in Money loan, extra non-banking activities and new working structure, which can effectively work in China. Action plan start with basic information analysis, target choice and provide further detail of non-banking activities.

1. Problem Statement
Microfinance, which can be described as an effective tool of poverty reduction, is successfully operated in Bangladesh. However, a controversial issue is that other developing countries are hard to keep pace with the Micro-model against poverty of society and burden of rural people, especially in China. In some way, China becomes a strange developing country which contains approximately $8.227 trillion nominal GDP but still has roughly 55% rural people (The World Bank, 2008-2012). As far as I know, implementation of government policy, working structure of financial institutions and lack of non-banking activities are three main problems in Microfinance of China. Furthermore, complex social phenomenon and increasing fierce social competition are the reasons of stress of this situation cannot be solved in a short time even Microfinance projects in a rural area. China can be summarized as the following table:

The result is still: “Although the payment rate is extremely high in some microfinance institutions (MFIs), most are not running efficiently"(Bai Chengyu, secretary general of the China Association of Microfinance). 2. Data Analysis

I. Microfinance project in China is focusing on microcredit. In particular, it is often referred to simple microcredit loans. People’s Bank of China (PBOC), China Rural Credit Cooperatives (RCC), and Agricultural Bank of China (ABC) or Agricultural Development Bank of China (ADBC) are four leading banks that provide microfinance project, which means only provide money loan. However, as we can confirm from the table following (next page), main customer and collateral are different from original Microfinance model, and most of the projects come from the commercial bank. Chinese Microfinance project, unlike the Garmeen model, which operations are not separated from the commercial bank and only focus on rural people, because of strict government regulation. ”Organizations are not allowed to operate as independent institutions”, (Heather Clydesdale and Kajal Shah, 2013, Para.4), Microfinance in China lack of legal capitals from the society. There is no denying that we need to change model to reach native environment, but we have to face the situation that Microfinance in China is not running efficiently (Knowledge@Wharton, Para 11, line 2, May 10, 2006). Moreover, Women's Federation which in Tianjin noted, "Tianjin is an enormous city, but the Federation reached less than 2,000 clients after more than seven years, says one analyst. It should have been 30,000."(Bai Chengyu, secretary...

Bibliography: 4. Du Xiaoshan, some views on the possibility of foreign investment in the China microfinance, February, 2008.
5. Jiao Jinpu, etc. “Microfinance and rural finance,” China’s finance publisher, October, 2006.
6. Knowledge@Wharton, May 10, 2006, Microfinance in China: Growth and Struggle
16. Weiyong Yang, 2006, Reforms, Structural Adjustments, and Rural Income in China,
17. Wang Shuguang etc., “Rural Finance,” Peking University Press, 2008
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