Operational Features and Institutional Innovation of Micro-credit Lending Institutions: Lending without taking deposit
This paper describes a People's Bank of China initiative to promote private-owned microcredit organizations that lend without taking any deposit in the provinces of Guizhou, Sichuan, Shanxi, Shaanxi and Inner Mongolia. The paper describes the beginning of this initiative, highlighting the technical assistance provided by the Asian Development Bank (ADB) and the enthusiasm shown by private entrepreneurs. It then describes the following features of the Lending without taking deposit microcredit organizations:
- Certainty and limit of capital sources;
- Flexible lending interest rate;
- Flexible geographic business expansion;
- Weak customer group and small amount of loans.
The paper states that:
- Local governments have adopted flexible measures and policies for microcredit companies;
- Lending without taking deposit microcredit organizations have brought in various innovations into the rural financial institutional arrangement.
The author recommends the consideration of the following aspects of Lending without taking deposit microcredit organizations:
- Market entry system;
- Guard against risks;
- Fund shortage during development;
- Supportive policies;
- Establishment of good governance mechanisms;
- Instilling of a modern customer management concept.
The paper concludes that efforts should be made to promote the comprehensive development of microcredit organizations in the direction of medium and high-end markets.
