Highlight on China, Part 3- Interview with the UNDP

This interview provides the perspective of Mr. Peter Zetterstrom, Program Manager of the Social & Economic Development Team at the United Nations Development Program (UNDP), on the current microfinance landscape in China.

Mr. Zetterstrom's highlights of the overall microfinance landscape in China include:

• The shift among regulators towards market-based provision of financial services;
• Government initiatives to draft regulations and pilot independent commercial institutions for microfinance;
• Relaxation of interest rate caps, creation of legal models and expansion of investment opportunities;
• The priority given by the country’s leadership to extend access of financial services to the rural areas, including initiatives by the People’s Bank of China and the China Banking Regulatory Commission;
• The Government’s view of multiplicity and sustainability as the key points for expanding access to finance in rural areas.

He identifies the following challenges to expanding financial services to rural areas:

• Banks avoid poor and low-income clients because they are not profitable;
• Microfinance institutions find it difficult to achieve scale and long-term sustainability because of a focus on social objectives;
• Restrictions, uncertainties and inconsistencies in the legal and regulatory framework deter investors and microfinance professionals.

The interview presents Mr. Zetterstrom’s opinion of the role of the government in microfinance, and concludes with a look at the role of bilateral and multilateral funders and development partners in microfinance.