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Small and Unsecured Loans Could Work for China
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The concept of lending small, unsecured amounts of money to the poor could be applied in China said a Nobel Peace Prize Laureate, who pioneered the idea, in Beijing on Sunday.  

Muhammad Yunus, who came to China only nine days after he was awarded this year's Nobel Peace Prize and is founder of the Grameen Bank, said the business model called "microcredit" or "microfinance" could be developed quickly in China with government assistance. 

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

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

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 for investment and to allow people to become involved in small "off-farm" income-generating activities.

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

But it's not sustainable because of policies, legal restrictions and insufficient funding, said Du Xiaoshan, a pioneer of microfinance research and practice in China and deputy director of the Rural Development Institute affiliated to the Chinese Academy of Social Sciences.

Seven private Chinese microcredit companies also face the same problems as they're only permitted to provide loans but cannot accept deposits.

Yunus said not allowing microcredit companies to take deposits would greatly hinder their development and stressed the importance of a proper legal environment and supervision mechanism for such businesses. Currently there are no laws or regulations for this field in China. 

Jiao Jinpu, deputy director of the research bureau of the People's Bank of China, said the central Bank was 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 allow them to develop microcredit in China.

Yunus suggested under the current circumstances establishing a fund from which microcredit could be accessed could be a practical way forward. 

(China Daily October 23, 2006)

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