I am not sure if you are still interested in this topic, but if so, I read a great article about microfinance in China today which attempts to summarise the issues.

http://www.china-briefing.com/news/2010/05/13/the-untapped-chinese-market.html

You clearly have a clear understanding of how SCB ranked the CFPA credit facility for its own credit management system. And you are exactly right that it should be classified as a loan without government support to be sure that internal control are conservative and tight.

I am just curious about how ABC would rate their loan to CFPA. The organization is not an SOE, but it does receive some support from the government. I wonder how much influence the government exerted to help CFPA MF secure the loan from ABC, which in turn, may affect how ABC would rate the credit of the loan internally. I wonder if it’s coincidental that ABC signs this deal and the Liu Mingkang is talking about providing financial services to rural areas with no financial access.

I agree that the government guarantee support is a good idea in terms of making a win-win-win situation. The questions I have are on implementation. What’s the best way to maximize benefits for the MFIs and its clients? Should the government set up a guarantee pool that a;; MFIs can apply for (similar to some of the work that the WB, IFC, and UNCDP have done)? Or should the government ‘pick winners’ and back a few MFIs? Or should the guarantees be for the borrowers instead of the MFIs, which can help some of the state owned commercial banks to downscale? If the government guarantees the loans, then would commercial banks who lend to either the MFI or the client be able to put up the minimum required reserve capital for it?

I believe implicit government support/guarantee is not recognised in most of the banks’ scorecards. For example, the facility with Standard Chartered Bank. This deal was rated with a finance & leasing scorecard developed internally in the bank, and the rating was determined based on the financial & qualitative factors of the microfinance unit of CFPA. No government support was recognised in the scorecard. People may think that is a little bit cruel, but internal control procedures should be complied anyways.

In order to increase commercial fundings to CFPA and other NGO microfinance units, the government need to show more explicit guarantees and more support. This is a win-win-win situation.

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