Challenges of Rural Microfinance in China - What Can China Learn from Bangladesh and Indonesia?

Shuyang Zhu, Trinity College

Senior thesis completed at Trinity College for the degree of Bachelor of Arts in Economics.

Abstract

Given that China has the largest rural population in the world, the demand of finance is very high. On one hand, Agricultural Bank of China (ABC) is moving to serve urban areas, and Rural Credit Cooperatives (RCCs), currently the most important source of formal credit in rural areas, are not doing very promisingly. On the other hand, nongovernmental programs-microfinance institutions (NGO-MFIs) have been performing well in terms of reaching the poor in the remote regions; however, due to the government’s regulations they are only allowed to offer loans but not to take any deposits, thereby limiting their future development and growth. This thesis aims to explore such microfinance challenges in China in detail, particularly discussing the difficulties that NGO-MFIs with two case studies. Through the analysis of successful NGO programs in Bangladesh, e.g. Grameem Bank, and government-sponsored programs in Indonesia, the thesis will also suggest how China could possibly overcome the existing challenges, subject to its unique socioeconomic and political environment. Possible improvements include providing staff incentives and trainings, creating strict and clear client selection criteria, diminishing dependence on donor funds, and establishing a better regulatory environment for the development of NGO-MFIs, etc. Secondary sources of data and information are employed and international comparative features of microfinance are the main focus.