The Research on Microfinance Models for BOP Market in Rural Areas of China

This article studies financial innovation models that target the Bottom of the Pyramid (BoP) market in the rural areas of China and aims to identify the best possible model to service this segment of the population.

The main microfinance models operating at the BoP in rural China include microcredit, co-guarantee loans, innovative mortgage loans and third-party involvement loans. A comparison of these models reveals that:

• Financial institutions prefer the microcredit model, but hesitate to lend to rural residents because they consider them bad clients;
• Co-guarantee loans model is less risky for financial institutions, and this model makes it easier for the low-income group to get loan approvals;
• Innovative mortgage loans model uses restrictive conditions because it makes property ownership compulsory;
• Third-party involvement loans model helps rural residents get loans without mortgages and is considered a beneficial financial innovation;
• Third-party involvement loans model is highly affordable and beneficial to all stakeholders.

Finally, the paper recommends that financial institutions ensure affordable services, develop applicability of microfinance services and make best use of their social capital to service the BoP market in rural China.