The first investments by a long-awaited fund dedicated to helping the poor through financial services has helped shed light on the huge hurdles still facing microcredit organisations in rural China.
Such non-governmental organisations, which now number about 100 on the mainland, aim to support entrepreneurship and fight poverty by providing small loans to individuals and businesses who would normally have trouble accessing credit. But they have long been starved of funding because Beijing has been reluctant to categorise them as bona fide financial institutions, banning them from receiving deposits.
The Inclusive Finance Wholesale Fund, established last year by Beijing-based wealth-management firm CreditEase, was designed to change that.
The fund - the first of its kind on the mainland - is modelled after one by Palli Karma-Sahayak Foundation's (PKSF) in Bangladesh, which provides financial assistance to various microcredit organisations. Like the PKSF, the Inclusive fund raises large sums from corporate or individual investors and redistributes the money in smaller portions to the NGOs.
So far, it has raised 10 million yuan (HK$12.3 million) in the capital and, on Thursday, delivered the first 5 million yuan to five selected microcredit NGOs.
Du Xiaoshan, deputy director of the Chinese Academy of Social Sciences' Rural Development Institute, said China, unlike other developing nations, has failed to support microcredit NGOs and allow them a free hand to help fight poverty.
"We have called for government support for so many years and all we can do now is continue urging, in the hope of moving the gods," said Du, who some call "the father of China's microcredit" for pushing the establishment of the mainland's first microcredit NGOs in the 1990s.
Professor Liu Lingling, of Tsinghua University's school of economics and management, said government support for microcredit NGOs could play an important role in efforts to improve the financial circumstances of the estimated 128 million currently living in poverty - 13 per cent of the population.
"Doubling the income of these poverty-stricken people in remote areas in the next eight years will be a very tough task for the government," Liu said.
President Hu Jintao , in his report to the 18th national party congress last month, called for doubling the per capita incomes of all citizens from 2010 levels by 2020. Hu had earlier vowed to guarantee access to those living under the poverty line to adequate food, clothing, education, health care and housing by the end of the decade.
Last year, the mainland's poverty line was lifted by 92 per cent from the 2009 standard to the current threshold of US$1 per person per day.
Microcredit NGOs emerged in 1994 and initially flourished. At their peak in 2003 there were more than 300, but only a third survived the decade, according to a report by CreditEase.
"Because they are not allowed to receive deposits and their start-up funds are usually small, many NGOs have difficulties in expanding and thus cannot meet the demand from their clients," the report said.
Du said that many counties listed as poverty-stricken do not have a single functioning microcredit NGO. By the end of last year, nearly 1,700, or roughly four per cent, of all the mainland's townships had no financial institutions at all, according to the CBRC.
Since its launch earlier this year, the Inclusive Finance Wholesale Fund has received applications for investment from 18 microcredit NGOs. Five of them have passed assessment and been chosen as the first beneficiaries.
Among the beneficiaries is the Xixiang Women's Development Association of Hanzhong , Shaanxi province.
Qin Xiuping, its secretary general, said her organisation has been left with no bad debt since it started its microcredit programme in 2006. She said most of the money was lent to woman farmers who raise hogs, chickens or cows.
"We charge yearly interest of 11.76 per cent and the borrowers are required to repay the debt in four payments in the year," she said. "For one who has borrowed 1,000 yuan, she usually makes 1,000 yuan after repaying the debt."
Besides difficulties in financing, Du said many microcredit NGOs were facing challenges in improving the quality of their staff and their management practices.
"Also, whether they can keep their initial goals [of helping the poor] in their minds is important," he said.
Zhou Weimin, deputy director of Peking University's Advanced Financial Information Research Centre, said how to make investors trust microcredit NGOs was another challenge.
"China does not lack wealthy people with loving hearts and NGOs should remain transparent to win their support," he said.
Xu Chao, manager of CreditEase's corporate development department, said many rich people would rather donate money directly to the poor than lend to them and charge interest.
"They don't understand that the point of microcredit is to teach the poor to create wealth with their credit," Xu said.
Rural credit co-operatives are the main source of microloans for rural residents today. Some banks also offer microloans to students, the jobless and the especially poor in rural areas, but they have reduced their exposure as bad loans and the higher costs of meeting the varied demands of their widely dispersed customer base eroded their confidence.
Besides these, there were about 850 "new rural financial organisations", including rural banks, microcredit firms and rural mutual co-operatives, offering similar services as of the end of September, according to statistics from the China Banking Regulatory Commission.
But that is far too few to significantly reduce the massive numbers currently living in poverty.