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Nobel laureate: Micro credit will work in China

By Zhu Zhe (China Daily)
Updated: 2006-10-23 08:47

A Nobel Peace Prize-winning concept of lending small, unsecured amounts to the poor can be applied to China, the man who pioneered it said yesterday.

Muhammad Yunus, who came to the country only nine days after being announced as this year's Nobel Peace Prize recipient along with Grameen Bank he founded, said the business model called micro credit or microfinance could develop quickly in China with government support.

Muhammad Yunus

Attired in traditional Bangladeshi dress, 66-year-old Yunus, who has offered tiny loans to millions of poor Bangladeshis to help them become self-employed in the past 30 years, said his model could benefit the many poor people in China.

"It's not charity. It's business that can earn money and also help lift the poor out of penury," Yunus said in Beijing at the Grameen International Conference on Microcredit in China.

In China, conventional banks have no interest in household credit in rural areas because of high repayment risks and operational costs. Thus, rural productivity has been hampered by a lack of access to reliable and affordable credit to purchase inputs and to invest in small, off-farm, income-generating activities.

Some pioneering institutions, mostly domestic or overseas non-government organizations, have experimented with microcredit in China for 10 years.

But they are not sustainable because of policy and legal restriction, and insufficient funds, said Du Xiaoshan, a pioneer of microfinance research and practice in China, and also deputy director of the Rural Development Institute affiliated to the Chinese Academy of Social Sciences.

Seven private microcredit companies in China also face the same problem, as they are only allowed to provide loans but cannot accept deposits.

Yunus said not allowing micro credit companies to take deposits would greatly hinder their development, and stressed the importance of a clear and proper legal environment and supervision mechanism. Currently, China has no laws or regulations in this field.

Jiao Jinpu, deputy director of the research bureau of the People's Bank of China, said the central bank is working closely with the China Banking Regulatory Commission, the Ministry of Finance and the Ministry of Commerce to give microfinance providers a clear legal environment to boost the development of microcredit in China.

Yunus suggested that under the current circumstances, establishing a fund from which microcredit companies could draw money might be a more practical choice.