Paper
Restructuring China's Rural Financial System: Existing Approaches, Challenges and the Future of Microfinance
What kind of financial system can better facilitate rural China's credit needs?
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This paper presents a review of China's rural financial system in the past half a century.
It discusses the problems and challenges of the current rural financial system, and explores the options to restructure the system in general, and the further development of microfinance, in particular.
The paper presents some of the salient features of microfinance programs (MFPs) in China:
- Microfinance institutions (MFIs) are not legalized and do not have a permit or license to engage in microfinance operations;
- Most MFPs are located in the very poor and remote western areas where the transaction costs are high and the investment opportunities are few;
- A large proportion of micro-loans have been used for agricultural activities.
Further, the paper presents principles formulated by the People's Bank of China on microfinance. These include principles on:
- Institutional forms and licensing;
- Sources of funds for microfinance operation;
- Loan procedures and credit lines;
- Linkages between formal financial institutions and MFIs.
Finally, the paper makes policy recommendations for microfinance development in China.
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