The World Bank Board of Executive Directors yesterday approved a
US$100 million loan to China to support the country's efforts to
promote credit flows to micro and small businesses.?
To meet the challenges it faces in maintaining sustainable
economic growth and addressing rising economic and social
inequalities, China is seeking to diversify the sources of economic
growth and raise the efficiency of resource allocation. Ideally,
these new sources should contribute to employment without exerting
extra pressure on an already strained environment. One potential
source for growth is micro, small and medium enterprises (MSMEs),
which have already contributed to GDP growth, job creation and
export earnings.
Promoting micro and small enterprises (MSEs), the majority of
which are privately owned, is a government priority in its drive to
build a well-off and harmonious society. But over time, the MSEs
that have become a forgotten segment, as banks have tended to
consider enterprises in the upper end of the SMEs as bankable.
The Micro and Small Enterprise Finance Project supported by this
new loan to China aims to expand credit flows to MSEs on a
mass-market and commercially sustainable basis. It aims to help the
China Development Bank (CDB) develop a new business line involving
wholesaling of MSE subsidiary loans and provide related technical
support to participating financial institutions.
The project is two-tiered, consisting of wholesale and retail
operations. CDB has been chosen as the wholesaler for this project
and will lend to and arrange technical support for participating
financial institutions (PFIs) at the retail level. Under the
project's two components:
- US$95 million will be channeled by CDB to PFIs, with maturity
of up to 10 years with grace period up to 5 years, for on-lending
to MSEs. The PFIs will on-lend the funds to MSEs at commercial
interest rates;
- US$5 million will be used to fund specialized and comprehensive
technical assistance to CDB and PFIs, to strengthen their
institutional capacity and skills to effectively engage in MSE
lending.?
"Micro and small enterprises play an essential part in China's
effort to build a harmonious society," said David Dollar, World
Bank Country Director for China. "We hope the project will
demonstrate to Chinese banks that lending to MSEs can be
commercially sustainable so that private sector MSEs can expand,
creating jobs and income growth and reducing poverty."
Germany's aid agency KFW has provided parallel financing under
the MSE finance project with a loan of US$50 million and a grant
from the German Government of 3 million Euros.
(China.org.cn June 21, 2007)