ABC Wholesale Loan of 20 million RMB to CFPA

On October 2009, the Agricultural Bank of China (ABC) issued a wholesale loan of 200 million yuan to the microfinance arm of China Foundation for Poverty Alleviation (CFPA) to administer and manage microcredit loans to poor farmers in rural areas. Even though the mandate of the ABC has long been to serve rural communities, it has proven too costly to reach down into the more remote villages. This partnership with CFPA Microfinance offers ABC, a member of the State Council Leading Group for Poverty Alleviation and Development, a solution to this outreach problem. This is the first national- level partnership of its kind in China, linking a large financial deposit-taking institution and microfinance players who execute small loan distribution at the grassroots level. This alliance highlights the role a commercial bank can play in the microfinance sector, and what semi-formal village-level mechanisms can do to assist financial institutions to fulfill a difficult mandate , and also to increase their social and economic impact in the rural areas. Historically, commercial and state banks have solely made such loans to other formal financial institutions – which most rural MFIs in China are not; of course CFPA is in a rather different category as an organization directly under the State Council, but nevertheless this arrangement can be seen as something of a breakthrough in China’s recent microfinance.

“PF China finds this breakthrough to be encouraging, and we hope it will signal the beginning of more such win-win situations. PF China has been inspired to look towards its own projects (see Tongwei II), to see how we can leverage our grassroots reach with the resources of larger commercial players. It is our hope that larger organizations can partner with smaller MFIs to merge their competencies, and to increase the availability and scope of micro-lending in China.”

Executive Director PlaNet Finance China, Gabrielle Harris
 

Article: Big Bank Joins Hands With Small Foundation, Initiate New Model of Rural Financial Services

http://www.abchina.com/cn/hq/abc/gynh/xxkd_content.jsp/contentId=1200168...

The Agricultural Bank of China (ABC) and the China Foundation for Poverty Alleviation (CFPA) held a credit signing ceremony recently in Beijing. Present at the meeting were various leaders of the Political Bureau of the Central Committee and respective Banks. ABC Director of the Three Agricultural Operations, Chou Ching-yu and the CFPA Vice President Ho Tao Feng signed the agreement on behalf of the two parties.

According to the agreement, ABC entrusted 200 million yuan of funds as a wholesale loan to the CFPA, for the development of micro-credit institution lending to and improving the prosperity of poor farmers. The CFPA has been entrusted by the Commission to act as a unified platform bearing overall responsibility for administering microloans, management and loan repayment.

As a main player in the “Three Rural Issues”, the ABC has sufficient capital, a strong sense of social responsibility, management experience and business model to help the CFPA continue to develop the financial environment in rural areas. Today, the cooperation between the ABC and the CFPA sets a precedent for commercial banks supporting non-profit micro-lending institutions, but also is an in-depth exploration for a new model wherein large commercial banks finance small institutions. Thus, the attempt not only integrates the big banks financial advantages with the small body’s practical experience, but also solves low-income services problems in big banks, and meets public welfare needs such as the financing micro-credit organizations. More importantly, more households can receive loans.

With the rapid development of the rural economy and the advancement of the industrialization of agriculture, financial needs in rural areas have become greater and more urgent. This corresponds with the existing financial service system’s difficulty in adapting to the rural economic development status quo. According to China Banking Regulatory Commission estimates, there is demand from 120 million farmers for credit services. Nearly 30% of rural households because of the lack of qualified collateral or a guarantor are unable to obtain loans from financial institutions. Farmers are calling to solve the "hard loans" issue, as they face short loan periods and small loans. With the situation as it is, commercial banks are eager to improve the rural financial service system.

The Party's 17th National Congress clearly put forward the "promotion of rural financial system reform and innovation". The ABC, represented by a group of commercial banks in rural financial sector has made a few attempts. At the same time relevant departments and more micro-credit and village banks are popping up with a wide geographical dispersion. In rural areas, farmers received an unprecedented financial demands attention, highlighting the rapid development of rural finance.

As the only large commercial bank working towards the “Three Rural Issues”, the social responsibility the ABC bears is substantial. As a member of the State Council Leading Group for Poverty Alleviation and Development, the ABC has a long-term role towards issuing “discount loans to support poverty-stricken areas”. Thus far, there has been a cumulative distribution amounting to 225.861 billion yuan. Prior to the 2008 spin-off of non-performing loans, the ABC Agricultural Development Bank anti-poverty loans turned-over 2.6 times reaching 91.864 billion yuan, of which 23.497 billion yuan was the original balance of these loan. Aside from the spin-off of non-performing loans, in 2008 year end, the loans of national and provincial key counties for poverty alleviation and development reached 397.058 billion yuan.

The CFPA has been a microfinance industry pioneer, established in 1996, the CFPA has been in poor areas administering rural micro-credit pilot projects by adjusting the successful Grameen Bank model to reflect the rural Chinese environment. CFPA works to meet demand for low-income households and promote the sustainable development of micro-credit model. As of late September 2009, CFPA has helped more than 170,000 poor farmers with loans to more than 600 million yuan. They currently service Liaoning, Hebei, Shanxi, Fujian, Jiangxi, Sichuan, Beijing, Guizhou, Hunan and Hainan counties, covering 25 provinces. The have 34,000 current loan customers with a loan balance of more than 160 million yuan with an overall repayment rate of 99.87% or more.
Translated by PF China Interns