UNDP Microfinance Assessment Report: China
The report states that if microfinance is given the necessary space to evolve and is proven successful, the consequences can be far reaching. Sections include:
- The potential role and current status of microfinance in China;
- The status of microfinance in China: Observations from field visits in Henan and Hebei provinces;
- Exploring the role of the UNDP in establishing microfinance as a credible instrument for poverty alleviation in China;
Potential role and current status
Within a complex, state driven and "top down" environment, microfinance has been initiated as an experimental activity to test an alternative strategy based on the choices of poor households rather than on Government directed initiatives. Microfinance represents a radically different alternative for credit and savings services than is currently available through the formal and semi-formal financial institutions in rural areas where the vast majority of the poor subsist. The major differences from services currently available are that microfinance:
- Targets a poorer segment of the population than what is currently being reached by the two main institutions operating in rural areas--Rural Credit Foundations (RCFs) and Rural Credit Cooperatives;
- Clients have freedom to choose how loan capital will be used;
- All experiments in China use variations of the Grameen Bank 5-person guarantee groups and centre (30 - 50 borrowers) meetings;
- The interest rates charged in microfinance programmes, while still subsidised at 16% per annum (effective rate) 2, are far above interest rates charged under most poverty alleviation programmes (often at 0 or 2% per annum);
Observations from field visits showed a lack of a common simplified and effective standard operating procedures and accounting and management information systems. This is the critical constraint to be dealt with before real and credible experimentation can begin
Role of the UNDP
The present approach is to heavily integrate microfinance into most activities and it emerged as almost a "cure all" as it was expected to deliver well beyond any proven capability. In the Mission's opinion, a very real risk exists that microfinance could be come too much of a panacea in the process of project implementation and the disciplines confused with far "softer" forms of development support.
