Structured Microfinance in China

This paper highlights the state of microfinance in China and the scope for its growth. It identifies the following factors contributing to the retarding state of microfinance industry:

• Long history of subsidized rural financing programs;
• Non-competitive interest rates;
• Lack of legal environment and policies encouraging commercial financial institutions.

Further, the paper discusses the various steps taken to use microfinance as an effective tool for poverty reduction:

• Reformation of large rural credit co-operatives;
• Relaxations on interest rate cap;
• Opening of financial sector to international competition.

It then highlights various solutions for enhancing structured finance like:

• Securitization;
• Tranching;
• Commercialization;
• Credit enhancement.

The paper concludes that the potential demand for microfunding requires that the demand and supply meet so as to reduce poverty and unemployment.