SME finance in ChinaSME finance in China

key trends in SME finance in Chinakey trends in SME finance in China Major obstacles to improve SME finance Major obstacles to improve SME finance Policy recommendationsPolicy recommendations Current developmentCurrent development

Key trends in SME finance in Key trends in SME finance in ChinaChina

Contribution by SMEsContribution by SMEs

number 99%number 99%

output 50%output 50%

export 60%export 60%

tax 30%tax 30%

jobs 70%jobs 70%

Key trends in SME finance in Key trends in SME finance in ChinaChina

Limited or little access to capital marketLimited or little access to capital market Share of credit in main banking financial Share of credit in main banking financial

institutions: 16%institutions: 16% High NPL ratio compared to corporate High NPL ratio compared to corporate

lendinglending High reliance on internal and informal High reliance on internal and informal

finance channelfinance channel

Key trends in SME finance in Key trends in SME finance in ChinaChina

SMEs funding problemsSMEs funding problems 66% of sample SMEs have difficulty to 66% of sample SMEs have difficulty to

access to financeaccess to financeThe lack of funding is the main blockade to The lack of funding is the main blockade to

the developments of SMEs (IFC-CPDF the developments of SMEs (IFC-CPDF survey)survey)

Similar findings from various surveys as Similar findings from various surveys as presented by Dr. Xu and Shenpresented by Dr. Xu and Shen

Major obstacles to improve SME Major obstacles to improve SME financefinance

Macro obstaclesMacro obstacles:: Capital market lacks function of financing Capital market lacks function of financing

especially for SMEsespecially for SMEs Insufficient competition in banking sectorInsufficient competition in banking sector Interest rate cap until recentlyInterest rate cap until recently Address SMEs finance as a social objective, not a Address SMEs finance as a social objective, not a

commercial business: Can SMEs afford high IR?commercial business: Can SMEs afford high IR? unfriendly social, legal, and credit environmentunfriendly social, legal, and credit environment

Major obstacles to improve SME Major obstacles to improve SME financefinance

Micro obstaclesMicro obstacles:: Banking Inst. lack of core credit tech.Banking Inst. lack of core credit tech. Credit culture and credit mgt. policy not Credit culture and credit mgt. policy not

adaptable to SME lendingadaptable to SME lending Information asymmetryInformation asymmetry Poor corporate governancePoor corporate governance

Policy recommendationsPolicy recommendations

Develop capital marketDevelop capital market Increase the level of competition of the Increase the level of competition of the

banking sector, push for down-market, more banking sector, push for down-market, more banking establishmentbanking establishment

Promote commercial viability of SME Promote commercial viability of SME lending: new way of thinkinglending: new way of thinking

Remove IR capRemove IR cap Improve social, legal and financial Improve social, legal and financial

infrastructure infrastructure

Policy recommendationsPolicy recommendations

Improve corporate governanceImprove corporate governance cultivate right credit culture and advocate cultivate right credit culture and advocate

institutional reform in credit area: talents and institutional reform in credit area: talents and risk-based pricing risk-based pricing

Capacity building in banking sector for SME Capacity building in banking sector for SME lendinglending

SMEs more open to lendersSMEs more open to lenders

Current developmentCurrent development

Credit guarantee schemesCredit guarantee schemes public and private owned: 4,000public and private owned: 4,000 guarantee capabilityguarantee capability funding resourcefunding resource Banks suspicion on CGSs Banks suspicion on CGSs Overall efficacy limitedOverall efficacy limited Controversy over the effect of CGSsControversy over the effect of CGSs

Current developmentCurrent development

Lending rate cap removed by central bank in Sept. Lending rate cap removed by central bank in Sept. 20042004

Pilot-trial project of lend-only MFIs in several Pilot-trial project of lend-only MFIs in several provincesprovinces

Guideline on MSE Lending of Commercial Banking Guideline on MSE Lending of Commercial Banking Inst. In July, 2005: a major revolution in Inst. In July, 2005: a major revolution in introducing commercially sustainable MSE lending introducing commercially sustainable MSE lending and promoting institutional and product innovation and promoting institutional and product innovation

Current developmentCurrent development

Credit bureauCredit bureau Improve legal infrastructure: Law on Improve legal infrastructure: Law on

property, Law on bankruptcy, etc.property, Law on bankruptcy, etc. Gov. at local levels come to help improving Gov. at local levels come to help improving

the social and credit environmentthe social and credit environment