Recent Microfinance Activity in China-Grameen Bank, SKS, and HSBC
Sorry I haven’t been posting much lately. Classes and midterms at SIPA seem to be getting in the way. If only I could count my blog posts as papers for class!
Lately, there has been a few noteworthy news pieces on China’s microfinance development. Dr. Yunus announced at the Clinton Global Initiative that it will be starting a bank in Sichuan. Jack Ma’s Alibaba is said to contribute $5 million to kick start lending. Dr. Yunus has been trying to start a true Grameen Bank in China since 2006. I am not sure if the small loan company license (小额贷款公司) has been issued yet, but you have to give them credit for trying. Perhaps the announcement is to increase pressure for the government to hand over licenses quick.
Vikram Akula of SKS recently wrote an Op-Ed in the WSJ about opening up investments in MFIs in China. He is definitely correct in pointing out that most casual observers who sees China as ‘developed’ and don’t need microfinance is wrong. He is also correct that the sector needs to open up. But I would have like to see what his ideas are in terms of liberalizing the sector. Allowing foreign investment is definitely one option (which he is, of course, interested in), but what else can China do domestically? Are there different models that he can share given India and SKS’s experience? As he pointed out, current regulations do not allow MFIs to take deposits. What then, are the risks of the MFIs? What should MFIs who do not take deposits be aware of in terms of managing risks?
Lastly, a press release from from HSBC came out yesterday that it has partnered with Women’s World Banking (WWB) in provided microloans through its rural banks in China, specifically in Hebei’s Suizhou branch and Chongqing Dazu branch. According to a Caijing article, the product is called “Happy Loans” (”贷款乐”). The product has been piloting for 3 months in Suizhou and is currently being expanded. What is WWB’s role in this partnership? Is it providing operational expertise? If so, does this mean that WWB (and perhaps MFIs in general) is better at assessing credit worthiness of low-income borrowers than a large multinational bank such as HSBC? Or is HSBC simply outsourcing it’s operation activities to WWB? From previous research, it seems that HSBC Rural Bank’s branches tend to focus only on export oriented areas (mostly exporting mushrooms actually), specifically for SMEs. Are they moving away from SME finance and moving towards ‘real’ microfinance? What are the terms of the loans?
Questions to ponder during my midterms.