The First “China Microfinance Innovation Forum” Held in Hangzhou

 On June 20-21st, 2010, the “First China Microfinance Innovation Forum” was held jointly by the China Society for Finance & Banking and Zhejiang Provincial Government in Hangzhou. The aim of the forum was to promote microfinance, share experiences, guide and standardize innovations in technology in the field of microfinance, upgrade risk management, and push for further national sustainability within the industry. Participants included representatives from People’s Bank of China (PBOC), China Banking Regulatory Commission (CBRC), provincial Financial Offices, commercial banks and microfinance institutions (MFIs), among others. Three keynote addresses provided an overview of the conference discussions:

• Deputy Governor of Zhejiang province, Mr. Min-Er Chen, acknowledged the role of small and medium-sized enterprises (SMEs) as key drivers of Zhejiang’s economy, and thus actively supports commercial banks in developing microcredit services, as well as exploring ways to meet SMEs’ financial needs in support of “San Nong.” Chen highlighted the lack of financing and private investment as the major challenges to SME growth, and pushed for accelerating the development of local financial organizations to boost microfinance innovations, focusing on “diversification, customization, and specialization”. He concluded with the need to standardize judicial evaluation mechanisms for fostering a healthy environment for SMEs and MFIs.
• Executive Vice President of China Society for Finance & Banking, Mr. Xiao-Ling Wu, emphasized that financial inclusion not only provides employment opportunities for those who wish to improve their livelihoods, but also promotes social harmony and positive externalities. Financial inclusion must be based on the principle of commercial sustainability, with governmental guidance as an essential external support. Wu concluded that recent tax incentives and risk compensation initiatives signal the government’s efforts towards poverty alleviation.
• Former Vice President of China Development Bank, Mr. Ke-Gu Liu, highlighted the importance of developing rural financial product offerings and the need to actively expand SMEs’ guaranteed loans and unsecured microcredit loans. He also expressed support for guaranteed loans and unsecured microcredit loans for private and small businesses. Wu also promoted the development of microinsurance products to expand the scale of directly financed SMEs through a collection of short-term financing bonds. 

One judicial highlight in the forum concerns the central government’s plan to amend “General Rules on Loans” in 2010. The “Note on Encouraging and Guiding Private Investment” as published by the central government in May 2010 which incentivized MFI’s involvement with the agriculture industry and encouraged private investment in infrastructure and renewable energy also received much enthusiasm and attention in the forum .

Updated statistics were announced during the conference, mainly regarding the development of microfinance in Zhejiang province. As of May 2010, there were 117 approved MFIs in Zhejiang province, with total registered capital reaching RMB 18.746 billion, and total loans and accumulated loans for 2010 amounting to RMB 22.657 billion and RMB 100.331 billion, respectively. Further details reveal that of the total loans administered, 84,000 loans with a value of less than RMB 1 million supported agricultural activities, aggregating to RMB 54.5 trillion, or approximately 54.34% of total loans. Loan loss provisions of RMB 331 million covered the total of overdue loans stood at RMB 54 million, presenting a loan default rate of 2.38%.

This event reflects a changing attitude in the Chinese market as emphasis on domestic innovation grows. At the core of microfinance is the promotion of entrepreneurship. The dedication of an entire conference to innovation in microfinance demonstrates the Chinese government’s maturing understanding of microfinance as a tool not just for poverty alleviation but to foster local entrepreneurship and innovation. Over the last few years, the Chinese government has become increasingly responsive to the social needs of budding entrepreneurs. For example, a little more than a year ago, Chen Hui Zhang, the Deputy Director of Financial Institute of Development Research Center of the State Council called for seeking microcredit innovation during the “China Financial Reform Forum”. Similarly, and more recently, En Jiang Cheng, the Research Coordinator of Center for Poverty Alleviation and Development emphasized during the “Microfinance Innovation and Rural Development Conference” the urgent need for financial regulation innovations, especially in rural lending. However, words need to be followed by action. For instance, even though Zhejiang may be a leading province in Chinese microfinance with its 117 MCCs, more can be done to serve the 50 thousand SMEs and farmers. It can also work to dedicate more loans for farmers relative to other groups. In the long-run, it still faces challenges in human resource deficiency and sustainable profitability. All in all, only time will tell if these discussions will translate to tangible support for local entrepreneurs and micro-credit clients.

Sources:
http://www.zhejiang.gov.cn/gb/zjnew/node3/node22/node168/node370/node374/userobject9ai116559.html
http://www.xinhuanet.com/chinanews/2010-06/21/content_20115376.htm
http://finance.sina.com.cn/money/roll/20100622/01193361286.shtml
http://finance.jrj.com.cn/2010/06/2308587656397.shtml
http://new.creditease.cn/news/gongsixinwen/2010/0622/185.html
http://news.hexun.com/2010-06-21/124015780.html?from=rss