China is learning from the mistakes made by micro finance
institutions (MFIs) in parts of India, as Beijing seeks ways to
bring banking and insurance to hundreds of millions of poorer,
rural Chinese households.
The ADB earlier this year led a Chinese delegation to the
southern Indian state of Andhra Pradesh, site of a spate of
suicides in late 2010 blamed on the bullying of customers by
predatory MFI moneylenders.
Along with Bangladeshs governments political
harassment of Muhammad Yunus, the Nobel Peace Prize-winning
founder of Grameen Bank, and the founding father of
microfinance, this even caused many to believe that the concept
had been fatally crippled.
Betty Wilkinson, a senior financial sector specialist at
ADBs East Asia department, who led Beijings
delegation to India, said Beijing saw clearly the lessons
learned by aggressive MFI expansion in southern India.
The message for China in Andhra Pradesh was that there
was simply too much lending growth, too fast, she told
Emerging Markets. Beijing realised that there
should have been more restrictions on the growing sector:
geographical restrictions, transparency over the fees [charged
by MFIs], and restrictions on interest rates.
For many, greed lay behind the problems in Andhra Pradesh. A
few months prior to the suicides, SKS Microfinance completed a
$350 million initial public offering. Micro lenders piled into
poorer Indian provinces, leading to a crackdown by regulators.
The upshot is that microfinance is now largely absent from
Andhra Pradesh, a province that needs reliable rural banking
more than ever.
Samit Ghosh, founder of Bangalore-based Ujjivan Financial
Services, one of Indias most respected MFIs, said
microfinance was now recovering from the crisis. The
worst is over, with regulations clearly in place to protect
customers, he told Emerging Markets.
But I think well see a real shakeout in Indian MFIs
over the next year. Youll see as many as half of them
either going to the wall or getting a severe haircut. Many
expanded too quickly, lent too quickly, and were too focused on
the profit motive.
The Chinese delegation, which included officials from
Chinas banking watchdog, the CBRC, and executives at
leading state insurers China Life and PICC, returned to Beijing
determined to regulate the budding industry at a national,
rather than - as in Andhra Pradesh - provincial level, and to
place strict lending limits on all MFIs.
Wilkinson said China was nonetheless determined to push ahead
with the industry, focusing on both micro lending and an
area often overlooked micro insurance. Around 10 million
rural Chinese have taken part in a pilot scheme since the
beginning of 2008, with the number of customers rising 30% in
The most popular packages among farmers and rural residents
have been crop insurance and emergency health insurance.
Regulators are bringing financial providers direct to
Chinese villages to market to 70 or 80 households at a
time, said Wilkinson. We see China Life and PICC,
and banks, doing this every week.
The ADB reckons that 4,000 MFIs already exist in the
Peoples Republic, split into two types of operation:
smaller micro lenders, and a group of a thousand larger ones
offering loans of up to $100,000 to both customers and to
capital-starved small and medium-sized enterprises.