P2P platform to increase capital for microlenders

By Wang Xinyuan

A new person to person (P2P) model of microfinancing has started cropping up around China to meet the demand for low-value loans, but regulations still restrict microfinance institutions' (MFIs) growth.

The P2P credit model links micro-credit lenders and borrowers via the Internet, allowing donors worldwide to give loans to people in China too poor to get bank loans, according to a discussion panel at the 2009 China Microfinance Summit Forum held on Wednesday in Beijing.

Most of them work with local poverty alleviation micro-credit organizations to pass the collected money to end users, normally farmers who do not have the collateral to apply for commercial loans.

"Our micro-credit poverty alleviation program in Laishui county started in 2003 with initial capital of 300,000 yuan ($43,923). So far we have served 2,300 clients, most of whom are farmers. We are not able to serve more as we are short of funds, and banks do not loan to us because we have no collateral," said Liu Jiaxin, director of Laishui Poverty-alleviation Foundation, an MFI based in Hebei Province.

"Although the policy has been loosened recently, it's still not possible (to apply for a bank financing). So whoever wants to work with us, we will accept," Liu added.

Liu's organization has partnered up with 51Give, a P2P micro-finance platform.

The local MFIs usually charge an 8 to 16 percent annual interest rate from their clients and transfer about 3 percent to the lenders via the P2P Internet platform, which then usually charges a 1 to 4 percent service fee, according to Liu and a P2P platform founder.

Refinancing for MFIs is the biggest challenge. MFIs are not allowed to take public deposits for financing the small loans and their interest rate is capped at four times that of the prime lending rate, according to the Guidance for Micro-Credit Pilot Programs issued in May 2008 by the China Banking Regulatory Commission.

"The regulators allow MFIs to finance up to 50 percent of their total assets from two other financial institutions," said Bai Chengyu, secretary-general of the China Association of Microfinance (CAM).

But problems finding financing persist.

Currently there is no wholesale fund to finance micro-finance programs, Bai said. "MFIs lack policies allowing them to expand in size and means of increasing financing."

Internationally, there is no limit on the size. MFIs often rely on self-regulation, and make loan decisions based on their own risk assessments, Bai noted.

To tackle MFIs' financing problems, CAM is holding talks with the China Development Bank and the United Nations Development Program to form a microcredit wholesale fund.

Bai did not disclose, however, when the fund would be set up.
 

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