The Policy and Legal Framework for Microfinance in China

This paper examines the policy and legal framework for microfinance in China. There are currently three types of microfinance in China, namely, public interest, mutual and commercial microfinance. The policy and legal environment each of these types are different, and cover different areas. Recent changes in the policy and legal environment started occurring in 2005. As a result, there are currently 11 village banks, 4 lending companies and 8 rural mutual credit cooperatives in China. The paper highlights the following characteristics of the sector:

• Chinese microfinance started as NGO-operated public-interest projects;
• Mutual funds have developed rapidly in recent years while commercial banks with legal banking licenses have started commercial microfinance projects;
• Provision of financial services by NGOs is illegal in China;
• Public-interest MFIs have become an important component of industry, and receive governmental support in a variety of forms.

Finally, the paper recommends that the Chinese government continue to focus on improving the legal and policy environment for microfinance in the country.