Highlight on China, Part 4: The Policy Perspective

This is the fourth and final of a series of Microfinance Gateway highlights on access to finance in China. This highlight focuses on views and opinions of regulators and policy makers actively involved in promoting financial access in rural and urban areas of China. To read this highlight in Chinese, click here.

International experience in microfinance demonstrates that a conducive policy environment, including a well-designed, favorable legal framework for regulation and supervision, will support the long-term development of efficient, competitive, and inclusive financial sectors.  

Photo credit: Jennifer Isern

In China, the regulatory environment for microfinance continues to evolve.  Starting in 2004, the Chinese central government has placed high priority on agriculture and rural development.  Expanding financial services in rural areas is a policy priority as part of the national response to President Hu Jintao’s call for new approaches to rural development.  As a clear sign of reforms, in 2005 the State Council made a range of pioneering policy statements:

• Relevant government agencies should formulate regulations on market access and the supervision of newly emerging rural financial institutions in order to cultivate competitive rural financial markets
• Provincial and local governments should begin piloting reforms
• In some provinces, new microfinance organizations could be established to serve rural clients

As the key policy-makers and regulators for microfinance, the China Banking Regulatory Commission (CBRC) and the People’s Bank of China (PBOC) have implemented a series of new policies and regulations, in addition to working with provincial governments to authorize pilot projects to expand access to finance throughout the country.  Interviews with experts from both agencies can be accessed by clicking on the organization’s name below:

• CBRC - Interview with Huang Weizhong, Division Chief of Cooperative Finance Supervision Department 
• PBOC - Interview with Jiao Jinpu, Deputy Director, Research Bureau
• PBOC - Interview with Xu Zhong, Division Chief, Financial Stability Bureau 

China Banking Regulatory Commission (CBRC)

CBRC formulates supervisory rules and regulations governing Chinese banking institutions. Over the past few years, CBRC launched reforms of the Rural Credit Cooperatives (RCCs), and in December 2006, CBRC announced reforms authorizing new types of rural financial institutions in six pilot provinces (Sichuan, Inner Mongolia, Guansu, Qinghai, Jilin, and Hubei). 

According to Mr. Huang Weizhong, Division Chief of the Cooperative Finance Supervision Department at CBRC, in the long run, the Chinese government aims to build a broad and sustainable system for financial services with extensive coverage in rural areas.  In addition to the RCCs, which have traditionally been the key players in rural microfinance, “micro credit companies, village banks, and rural mutual cooperatives are the three new types of rural financial institutions that are strongly encouraged” to launch services in rural areas.  CBRC initially authorized these new pilots in six provinces, and based on initial positive results, the program has just been expanded to 31 of China’s provinces.

Mr. Huang noted five urgent priorities as China expands financial services to rural areas:

1. Expanding outreach to rural clients with diverse financial services including banking, insurance and securities
2. Building capacity of existing financial institutions in rural areas
3. Upgrading payments systems for transaction settlements
4. Developing the financial infrastructure including credit information systems, collateral registries, electronic finance, and financial education for clients
5. Establishing appropriate policies to streamline rural finance.

For the full interview with Mr. Huang, please click here.

The People’s Bank of China (PBOC)

As the central bank of China, PBOC formulates monetary policy, administers financial markets, monitors Chinese currency exchange rates, and conducts research in a range of financial sector issues.  Over the past year, PBOC worked with provincial governments to authorize seven pilot micro credit companies in five provinces to offer credit services to rural customers.

According to Mr. Jiao Jinpu, Deputy Director of the Research Bureau at PBOC, the Chinese government plays a crucial role in promoting microfinance in three ways, acting as:

1. Policy maker for the microfinance sector, supervising implementation of all microfinance activities
2. Policy formulator for microfinance institutions on access, scope of business, and interest rate
3. Direct actor to invest, subsidize and/or promote the development of microfinance projects.

The key to reforming rural finance is “breaking the monopoly of the RCCs in the rural financial market,” commented Mr. Xu Zhong, Division Chief of the Financial Stability Bureau at PBOC.  He noted that the emergence of “alternative financial institutions…will help to establish a competitive and efficient market” in China’s rural areas.

Mr. Jiao highlighted two unique aspects of China’s microfinance landscape and regulatory guidelines.  For now, the newly authorized micro credit companies are limited to loans and cannot manage deposits.  In addition, policy guidelines place “great emphasis on the role of microfinance in serving rural financial reform and promoting rural economic development.”

For the full interview with Mr. Jiao, please click here.
For the full interview with Mr. Xu, please click here.