I noted the mention of China in the PR.  I’ve heard that Accion just hired a new operations person for their Inner Mongolia office, so I expect to see their MF efforts in China to kick back up soon.

Happy Fry Tofu Seller in Beijing

China’s State Council just issued a draft ordinance that allows street vendors and other microentrepreneurs to register for permits and recruit employees legally. The draft ordinance, titled “Individual and Household Business Ordinance (Draft)” / “个体工商户条例(征求意见稿)“, will allow micro-enterprises to get access to loans from alternative sources such as small loan companies and village banks.

Previous requirements only allow business to be registered at its place of operation, which is impossible for street vendors and hawkers. Under the draft ordinance, entrepreneurs would be able to register their business under their place of domicile, no matter where they operate. The permission to register will be delegated to the local State Administration of Industry and Commerce (SAIC).

If registered as a “personal business,” the person and his/her personal assets will be liable for the business. If it is registered as a “household business,” then the entire household, including the household’s assets are liable for the business.

According to statistics from China’s State Administration for Industry and Commerce, individual and household business registrations have been raising rapidly. In the first quarter of this year, there were 1.5 million newly registered individual and household businesses, a 28% increase year on year. As of March 2009, there are 29.5 million individual and household businesses registered in China, which employs roughly 58.1 million people in total.

The individual and household businesses will be allowed to engage in various industries, including wholesale, retail, hospitality, food and beverage, manufacturing, transportation, warehousing, post, agriculture, fishery, animal husbandry, construction, mining, and services.

Under the proposed draft ordinance, individual and household business will also be able to recruit employees legally. In the past, these businesses were only allowed to have one to two assistants or three to five apprentices if skilled labor is involved. Such measures would help migrant laborers get employed at small and micro-businesses with some protection.

Along with the proposed ordinance, there is a stipulation that no one can collect “management fees” or “bazaar fees” from individual and household businesses. Associations fees are allowed as long as it is voluntary. I wonder if this clause is included to snub existing extortion that commonly affect street and market vendors.

Yet not all of it is rosy. Along with registration, is responsibilities: taxes. After microentrepreneurs register they must also keep proper books and file for taxes like other businesses. Or else, fines can range from 100 to 1,000 RMB.

More information on the ordinance, in Chinese, can be found here.

1) Small Loan Company (小额贷款公司) is really Microcredit Company version 2 (小额信贷公司).

Apparently the CBRC never intended for the microcredit company to be completely “credit” base. They wanted them to provide loans with collateral / guarantees; hence the rename and new law.

In effect, this has made SME their main clients, as they are the only ones who can provide titles and assets for collateral. This isn’t exactly “microfinance” as most of us understands it. Even though some might translate 小额贷款公司 as “microloan company,” I prefer to call them “small loan company” since they don’t really serve the poor and their loan amounts are 100K+ RMB.

The upside is that with the 1000+ small loan companies being formed currently, some may move in the rural finance / true microfinance direction. The legal status is there, it’s just a matter of having willing, patient, and socially-focused investors step up.

2) There’s a serious lack of sustainable / commercial microfinance expertise in China.
Aside from expansion capital and legislation, there’s a serious lack of sustainable / commercial microfinance expertise in China.  Microfinance in China has largely been an NGO experiment for the past 15 years.  As a result, there lots of NGO people who have microfinance background; however, they haven’t been exposed to managing for financial sustainability at all. On the other hand, there are lots of finance people / bankers in China, but they don’t really understand microfinance or how it really works.  As a result, there’s a gap in expertise.

It would be wonderful if we can either a) send Chinese NGO microfinance managers for training at a financial sustainable MFI to learn how it works and what it takes or b) send finance people who are truly interested in doing microfinance into the fields and bring their expertise into the NGOs.

Option B is probably easiest, but could lead to mission drift.  Option A is probably best, but most costly.  Option A is more effective in nurturing existing dedicated talent and more inline of the philosophy of microfinance and developing from the ground up than option B.