Banking

Supervision on 'grass-root' financial firms urged

(Xinhua)
Updated: 2010-09-17 15:29

BEIJING - Economic experts suggested Thursday that Chinese State-owned banks should be authorized to supervise "grass-root" financial companies, the entities which provide small loans to grass-roots businesses.

Liu Kegu, consultant for the China Development Bank and also a member of Committee for Economic affairs of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), made this recommendation in Beijing at the 2010 China Microfinance Summit.

The two-day summit, organized by the China Association of Microfinance, aims at communications and cooperation between China's "grass-roots" financial companies, or microfinance companies.

"State-owned banks lend to the microfinance companies, so they have to watch to ensure their money can be refunded," Liu said.

"In that way, they will have to, and are willing to, supervise the operation of these companies," he added.

According to Liu, small and mini-type companies, individual businesses and farming households are all "grass-roots" businesses.

Despite their eagerness to receive loans, these businesses have difficulty with banks due to their inability to provide collateral for loans as required.

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In 2005, the Chinese government created a policy to encourage micro-credit loans, and since then, microfinance companies have been booming.

By the end of 2009, the number of microfinance companies had reached more than 1,300, with outstanding loans of over 70 billion yuan ($10.4 billion), or 0.19 percent of all bank loans, according to officials.

However, the emerging and scattering microfinance companies are proving difficult for the government to supervise.

Right now, only provincial finance departments are playing a role in supervision, but more often than not, they just issue regulations based on risk control instead of having them implemented, said Jiao Jinpu, deputy director of the finance research institute of the People's Bank of China.

"Unlike banks, as government departments are not on the same chain of interests, their supervisory strengths are unlikely to be adequate," Jiao said.

"Banks, however, apart from their supervisory function, can also provide professional financial assistance, which is significant for the development of microfinance companies," said Liu. "So it's much better than merely involvement by the government departments."