Micro-finance, poverty alleviation, and financial reform in China

This paper assesses the potential role of micro-finance for poverty alleviation and financial reform in China in light of China's micro-finance experience to date and ongoing changes in China's economic, institutional, and policy environment. China's micro-finance movement began in 1994 and has experienced mixed success. Some small-scale NGO programs have demonstrated that the poor are capable of repaying loans at relatively high rates of interest and that such programs can achieve financial sustainability. But the uncertain legal status of NGOs, a strict financial regulatory environment, and inadequate financial management capacity prevent program expansion. Changes in credit demand associated with economic restructuring suggest that micro-finance is not well-placed to lead China's poverty alleviation efforts. As an example of innovative institutional design, China's micro-finance could help shape the direction of financial reform and play a future role in a diversified financial system.