Microfinance to Reach Rural Poor with ADB Loan to Partner Banks

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Mar 2012
China, March, 29 2012 - ADB will help entrepreneurs, micro and small enterprise owners and poor households access financial services in the central and western regions of the People’s Republic of China (PRC) with a CNY130 million loan facility to partner banks to help them build their wholesale lending capacity to microcredit companies (MCCs).

“This facility is expected to have significant catalytic impact through a learning-by-doing process, helping local partner banks establish wholesale lending as a regular line of business,” said Ying Qian of the East Asian Department. “As wholesale lending to the microfinance market grows, it will open up new opportunities for more balanced growth and poverty reduction.”

ADB will work with local partner banks as ADB’s direct borrowers. The partner banks will on-lend funds to MCCs in rural and poorer parts of PRC, particularly Guangxi Zhuang Autonomous region, Inner Mongolian and provinces of Heilongjiang, Ningxia and Yunnan.

Microfinance and MCCs are a relatively new concept in the PRC. Unlike conventional banks, a microcredit company is a non-deposit taking microfinance institution that is privately-owned. Some 3,600 MCCs were operating in all provinces and municipalities by the end of 2011. MCCs lend to the rural households, which form about 70% of the Chinese population, and to sole proprietors and entrepreneurs who have been a key engine of growth in the south and east.

Despite facing a shortage of funds in a market dominated by the large state-owned banks, microcredit companies still managed an average 9% return on equity after tax since they first started operations in 2007, according to People’s Bank of China statistics.

ADB plays an active role in the healthy development of this innovative segment within the financial markets. Apart from providing this loan, ADB is also working closely with PRC’s regulators to help build monitoring frameworks, ratings systems, and analytic capacity for these markets.  In addition, technical assistance to support bank and MCC capacity will commence shortly, imparting knowledge essential for long-term sustainable growth.

ADB’s funding facility will have a 4-year availability period, subject to ADB’s satisfaction with the facility’s performance, two years after the first credit agreement is signed with a partner bank. Loans may have a maximum tenor of 3 years, so the facility will have a maximum tenor of 7 years. Principal repaid within the availability period may be re-borrowed.



 

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