Report on Best Practices for Sustainable Models of Pro-Poor Rural Finance Services in China

This country report on rural finance best practices in China is a part of the series of country reports being published by APRACA with the financial support from International Fund for Agricultural Development (IFAD).

The Chinese government has used several policy instruments to promote rural finance and microfinance, including the provision of agricultural on-lending to the RCCs, tax concessions and subsidies extended to regulated RFIs for rural and micro-lending, and partial liberalization of the lending rate of interest for rural and micro-lending. The government also permitted the entry of new types of RFIs to strengthen competition in China’s rural financial markets. Obstacles to sustainable rural financial services for meeting the changing demand remain in China.

Despite the great efforts made by the financial regulators and the progress achieved after the reforms in 2005 and 2006, China’s RFIs remain slow in penetrating the rural financial markets (RFMs). Overall, the loanable funds have been channeled from rural to urban areas and from the poor western regions to the richer coastal regions by the formal financial system in China. On the whole, the financial markets in China are dual: large- and medium-size enterprises, especially state-owned enterprises (SOEs), have access to cheap credit from formal banks while the privately owned small and micro-enterprises and farmers either have very limited access to formal credit or have access to formal credit at a much higher cost. Many MSEs and small farmers are dependent on finance from informal sources to meet their

Based on the inclusion criteria involving mass outreach to rural communities and households, operational sustainability, and innovations in financial products and services, authors selected three best cases for rural and microfinance in China: the mobile phone product by Chongqing Rural Commercial Bank (CRCB), the case of CFPA Microfinance Pty. Ltd. (CFPA MF), which is a semi-formal RFI unregulated by CBRC, and the microfinance downscaling by city and rural commercial banks in China.

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