Is microfinance en route to becoming China's next big thing? Does it make sense for China? Does it make sense in these difficult economic times? All important questions worthy of further investigation.
Over the last few years, lending in China has gotten marginally better and, among other things, China has loosened up a bit in terms of allowing foreign entities to engage in microfinancing. In October 2008, New York-based Citigroup announced the opening of two micro-credit firms in China's Hubei province after regulators approved its application. London headquartered HSBC and Standard Chartered also entered the Chinese microfinance sector last year. According to a piece in Ethical Corporation, all is indeed hunky-dory in the world of Asian microfinance, broadly speaking:
Despite the trouble in global financial markets, investors continue to put money into Asian microfinance. A $40m fund aimed at financing start-ups in microfinance was launched in October by the India-based Institute for Financial Management & Research Trust, supported by a group of investors including India’s Icici Bank. In May, ASA International of Bangladesh, ranked number one on the Forbes list of top 50 microfinance institutions, raised $125m in funding – the largest ever by a microfinance institution – through private equity firm Catalyst Microfinance Investors.
Abhijit Ray, vice-president at microfinance consulting firm Unitus, in India, says: “Large and well-managed microfinance institutions have not been affected much by the credit crisis.”
In China specifically, an organization called Wokai seems to be making great strides. What makes Wokai particularly interesting is that it has set up an internet interface between the lenders (people like you and me) and the borrowers (generally entrepreneurs in rural China). So, for example, there's a herdswoman in Chifeng, Inner Mongolia, who is seeking $600 for cattle feed, and a butcher also seeking $600 to expand her inventory. Both have received some funding towards their goals, but still require more. For more on Wokai, see "Empowering the impoverished with Wokai."
I've always been a fan of microfinance, and it indeed appears to be working (see here and here). Given especially the global economic slowdown and the rising unemployment among China's migrant workers, this may be the perfect opportunity for microfinance agencies to significantly impact the lives of many Chinese. Yet a part of me remains skeptical: how well can microfinance actually work in China?