Microfinance in China: Still Long Way to Go (Part I)

Jaquiline Novogratz‘s social enterprise is working fine in Africa. Her Acumen Fund, incorporated on April 1, 2001, currently manages more than $30 million in investments in South Asia and East Africa, all focused on delivering affordable healthcare, water, housing and energy to the poor.

Novogratz believes that neither charity nor marketplace alone will solve the problem of poverty, and that is why she comes up with the idea “patient capitalism” that serves low-income people. The model uses philanthropic capital to make disciplined investments – loans or equity, not grants – that yield both financial and social returns.

However, this model, though experimented in Bangladesh, Africa and many other developing areas, is yet unfamiliar to the vast numbers of the poor in China.

“The development of microfinance in China lags far, far behind the rest of the world,” said Bai Chengyu, chairman of the China Association of Microfinance.

October 27 and 28, 2009, China Microfinance Summit was held in Beijing, with a theme “Innovation and Development”. Muhammad Yunus, the founder of Grameen Bank and the 2006 Nobel Peace Prize winner, who developed the concept of microcredit, attended the Summit and delivered a speech. He emphasized that microfinance projects in China should be social enterprises that aiming at helping the poor, instead of pursing maximization of profits.

Yunus suggested that there should be policy supports from the government for running microfinance, and the deliverables should be not only financial outcomes, but also fundamental infrastructures such as healthcare: it is exactly what Novogratz’s Acumen Fund is doing.

But similar cases are rarely seen in China. Most of the infrastructure development projects are carried out by either government or non-government organizations such as World Vision, which narrows down the space left for microfinance.

“Even if Yunus comes to China, he cannot make it,” said Mao Yushi, the pioneer of microfinance in China. He has been experimental microfinance project in Shanxi Province since 1985. However, his efforts are categorized as illegal financing.

And Yunus is coming to China: with his bank, expecting to run a microfinance program in Sichuan as well as Inner Mongolia. Many obstacles are ahead of him.

(To be continued)

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