Is Microfinance an Effective Development Tool in the Context of Poverty Alleviation? Evaluating the Case of Rural China

This paper examines whether microfinance is an effective poverty alleviation tool in the case of China, where it has not yet produced the exciting results as it has in other countries.

The paper, in chapters, explores the prospects and limitations for microfinance in China by analyzing the Chinese microfinance environment and a selected case study of a rural microfinance program in China. It discusses:

• The emergence and evolution of microfinance in general;
• The socio-economic environment for microfinance in rural China; the financial and legal environment at the macro and micro levels;
• Funding the poor cooperative in Yucheng county, Henan province; its performance and the implications for the potential of rural microfinance in China.

The paper draws the following conclusions from the study:

• Impediments to the development of microfinance in China are:
  • Heavy Government involvement;
  • Difficult geographical location of the rural poor;
  • Hostile legal and regulatory environment.
• Microfinance is effective only as part of an overall development strategy;
• Its effectiveness depends on contextual factors;
• Constant innovation is necessary to adapt it to local circumstances.

The author concludes by stating that, when it is part of a development approach targeted to a particular environment, microfinance can enhance poor people's financial opportunities and can create the potential for improvements in welfare and empowerment.