China Microfinance Industry Assessment Report

. I The Definition of Microfinance/Microcredit There are two related words in international microfinance field. Microfinance refers to financial services provided for the middle and low income population while microcredit indicates credit services serving the above group. Besides the middle and low income population, there still exist many people who have no or limited access to financial services in the society, but the services for them are concluded into the concept of inclusive finance. Regarding the concept of microfinance/microcredit, no unified understanding has been reached in China. The writer suggests that it is better to follow international definition to distinguish microfinance and microcredit. At present, microfinance companies are prospering in China, but in fact they conduct their businesses just by disbursing small amount of loans, so the concept of microfinance here is different from international one. The concept of international microloan company can be adopted for microfinance companies in China. As for microfinance, it should be regarded as one social business aiming at double bottom lines of commercial sustainability and social development. . II Development Phases of Microfinance The first phase was for demonstration and experimentation, during which microfinance as one means of poverty alleviation was introduced and promoted as projects. The second phase reflected strong initiatives from central government, during which microfinance was embedded into formal financial institutions. Given insufficient financial supply in rural areas, the government facilitated the operation of microfinance as one means of poverty alleviation in rural areas and as one way of supporting start-up business and reemployment of laid-off workers in urban areas. The third phase begins with issuing a series of regulations by regulatory bodies in favor of microfinance development, implying that microfinance steps into a phase of commercial and sustainable development. . III Market Supply and Demand of Microfinance In terms of supply, diversified microfinance suppliers and supply channels have come into existence in China. However, the overall volume of supply is limited, and the majority of such supply is in their pilot periods. From the perspective of demand, there are various types of people requiring microfinance, including urban laid-off workers, rural households and microentrepreneurs etc. At the same time, the demands for microfinance services are also diversified, covering microcredit, microsavings, microinsurance and investment etc. Among all financial services, microcredit ranks first among the above demands based on the analysis of accessibility. The credit capabilities of those people 1 In this report, microfinance and microcredit are used interchangeably in most of cases.