Microcredit Innovation in China

This paper highlights innovative microcredit practices in China through a survey of three rural Chinese MFIs that use innovative financial and organizational models adapted to local contexts. It also highlights the similarity between rural financial practices conceived by 11th century Chinese government leader Wang Anshi (Wang) and the mutual solidarity based lending model of microcredit pioneered by Muhammad Yunus in the 1970s with Grameen Bank.

The paper highlights the importance of adapting an organization's operational model to the local context. Conclusions include:

• Successful organizational innovations of each microcredit institution illuminate a certain feature of microcredit as a development practice;
• Wang's case demonstrates that the power and the limitations of a big idea like microcredit is often influenced by its political and social environmental parameters;
• Making people responsible for each other's individual economic action can lead to enhanced overall performance;
• Wang's concept of mutual solidarity groups was based on the same principle that is used in modern microcredit;
• Wang's failure was in the fundamental area that faces modern MFIs, namely, the issue of whether all local agents recognize the value of the sustained operation.