Viewers of this blog are likely familiar with Wokai’s continuous efforts to combat rural poverty in China through a person-to-person platform. Wokai works in two specific areas of rural China—Yilong, Sichuan Province and Chifeng, Inner Mongolia. But “rural China” is a broad and sweeping term that can apply to anywhere between 300 to 450 million people.
Even if the number of organizations and people willing to lend a hand to those in need expanded exponentially, there would still be left behind with inadequate resources.
The work of international organizations such as Wokai (registered in the U.S. as a non-profit) continues to garner an increasing amount of attention from the world aid and development communities. There is another major player in the fight against rural poverty. The Chinese government’s policies and actions are less well-known outside of certain networks. The bottom line is that the government’s involvement in rural China is nothing less than of paramount significance.
Over the last two weeks, two of our Beijing Chapter volunteers, William Barrett and Qi Xiaolu, have tracked different articles and discussion threads about rural poverty in China. The common thread holding together the vast majority of news related to rural initiatives is indeed the central government.
Below is a selection of information (mainly translations and summaries of articles) that can perhaps began offer a glimpse of recent developments in microfinance and government policy in rural China.
“New solution to rural old people’s problem,” December 16, 2009
www.zjol.com.cn
“Old house for pension” is a method that was first used last July in Wutongkou, Longxia, Zezishan, and Honglian—four villagesin southwestern Zhejiang Province (under the administration of Lishui city.) This program permits and encourages impoverished elderly people residing in rural areas to trade in their old house to the government for a new flat. While the new flat owners are granted lifelong residence, the government retains ownership of the flats. The government subsidizes 85 to 200 RMB per square meter in the new flat and rewards 15 to 50 RMB per square meter for tearing down the old houses.
This winter, the four villages placed 300 people into the newly-built flats. As a result of what has been deemed the success of this program, the policy was expanded as roughly ten flats were built in Gushi County, Henan Province.
Recently, this method has been examined by provincial panel of innovation and will be one of the 30 nominees for the fifth “Chinese Provincial Government Innovation Reward.”
“3,084 Shabby Houses Being Rebuilt,” December 27, 2009
www.xinhua.net
Rongchang Village, in Chongqing plans to renovate 3,084 shabby houses by 2012, eliminating any possible danger of erosion. A recent study found that 3,084 houses were mainly built by wood and stones, leaving them vulnerable to earthquakes. Every family will receive 150,000 RMB subsidy during this reconstruction program. The project will also serve as an evaluation of local officials and their work over the next three years.
“MCC’s identity still controversial in China,” December 15, 2009
www.chinamfi.net
The Central Bank recently issued “The Norm on Financial Institution Coding Standards.” In this directive, micro-credit companies (MCC) are included in the scope of financial institutions, which indicates that the identity of its financial institutions grants them access to central bank statistics. However, if the MCCs indeed are treated as financial institutions, they should enjoy certain tax incentives. The Central Bank is yet to confirm, leaving some MCC’s pessimistic towards receiving such incentives.
Analysts said that if micro-credit companies belong to non-financial institutions, the supervision principal remains ambiguous. Looking forward, analysts maintain that this directive could mean a clear supervision structure on micro-loan companies in the future.
According to the central bank, the directive aimed to absorb the lessons of this financial crisis. For example, a major theme is that the scope of China’s financial institutions covers not only traditional banking, insurance and securities industries of financial institutions, but also corporate pension, loan companies, rural financial cooperatives, village and township banks, as well as other financial institutions.
“Hainan Provincial Government’s Management of Microfinance Institution’s Management,” December 15, 2009
http://www.chinamfi.net/news_show.asp?id=2373
The government of Hainan Province has issued a directive on the regulation of microfinance enterprises. The government said microfinance enterprises can help to mitigate the financing difficulties of SMEs (small and medium sized enterprises) and can aid in solving the problem of “三农”（countries, farmers and agriculture.) This experimental launch of government-backed microfinance institutions will also help to regulate informal finance and establish competitive financial markets, according to the Hainan Provincial Government.
The government has decided to start this experiment in Haikou, Sanya and Qionghai, the three biggest cities in the province, with the obvious goal that experiences in these areas can be extended elsewhere in the province.
“New Collateral Model in Guangdong”, First Economics Daily, December 21, 2009
Guangdong Province invented a new collateral model this year to counter farmers’ difficulty of applying for a loan. The Foshan government (Foshan, 佛山, is a prefecture-level city in Guangdong Province) funds the collateral. The Sanshui District Credit Corporation provides the loan. The People’s Insurance Company insures the principal.
Since the program launched on July 23 of this year, the microfinance program warranted 59 policies with premiums equating to a sum total of 235,600RMB. The program provided 11.78 RMB million in credit certificates to 58 farmers. In addition, the credit corporation disbursed a loan to an agricultural company.
The maximum disbursement amount depends on the type of organization receiving the loan. The highest amount allotted for proprieties is 500,000 RMB; for farming cooperatives or district enterprises, 1 million RMB; for municipal top enterprises, 2 million RMB; for provincial and national top ones, 3 million RMB; and for community devoted to modern agricultural infrastructure construction, 5 million RMB.
Farmers do not have to provide collateral. The insurance company charges two percent of the loan as the premium. When the debt relinquishes, 20 percent will fall on the credit corporation and the rest on the insurance company. When the annual amount exceeds the highest amount, which is 1.2 times the total premium income, twenty percent of the excess will be paid by the credit corporation and 80 percent by the district government.
Officials in Guangdong said that only 50,000 farmers are doing the business of planting and raising so not so many have applied to this new model yet. Officials hope to spread this method to other areas in Guangdong.
“Legislation for Microfinance,” December 25, 2009
www.cien.com.cn
Microfinance NGOs still struggle with their identities in the Chinese legal and financial markets. But Chengyu Bai, the secretary of China Association of Microfinance, asserts that despite this situation, the micro-finance industry still carries a significant value to society by benefiting the poor and using its own funds instead of public savings.
From 1992 to 2007, 84 outstanding NGOs from 35 countries turned into non-banking financial institutions or commercial banks. But the majority of them maintain their NGO status. Current financial supervision can restrict the development of beneficiary microfinance organizations. According to Bai, the trends of commercialization and systemization in the micro-finance industry is inevitable. Bai says in order to strive for a legitimate position and to raise funds, those philanthropic microfinance organizations have to restructure and absorb commercial investment.
“[However], such restructuring runs into a lot of difficulties in China because social investment is currently lacking. There are many investment institutes specially serving microfinance NGOs overseas,” Bai said.
Bai cited Europe, where some institutes give two percent of the profit back to the investors and the other 98% to fund the micro-credit in developing countries.
“Without such social investment, it is very likely that those microfinance organizations will change their original purpose after forced restructuring, solely paying attention to profit and neglecting its social responsibility,” Bai said. “The NGO will become the minority and thus lose the control, ultimately hurting the rights of people in need.”
Bai also noted the changing loan code, perhaps opening a window for microfinance NGO’s in China.
“Recently, the People’s Bank of China is modifying the code of loans,” Bai said. “Hopefully the restriction of non-bank fund raising will be lifted. Only when the policy and the supervision have been changed can microfinance really develop freely in China.”
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