Market Segmentation and Integration of Microfinance in China（中英文）

Bai Chengyu

       Integration of microfinance into the financial system is the mainstream policy strategy for microfinance development in the world. The market segmentation has bound the development of microfinance, and limits the achievement of its social development goals that is to provide financial service to the poor and low-income people.
       Financial market is a system of dialectical unity of segmentation and integration.  We shall know the reasons and factors of the segmented market than can find the approaches of integration; and even in an integrated market, there always be some specialized markets.
 
       Integration of microfinance into financial system has two aspects to deal with:
       First is the legal and policy arrangement - legalization and regulation. Legalization of microfinance is based on official supervision and regulation, not only on microfinance institutes but also on products. That means the microfinance institutes can be registered as commercial banks, microfinance products must be supervised by regulatory agency and microfinance business must be included the statistics of the financial system. 
Second is the integration of microfinance products. The products shall be replicated or operated by the commercial banks. And at the same time, the microfinance institutes can mobilize savings as the other banks. Further more, new products of insurances and other financial services can also be innovated for the microfinance clients. All these kind of market integration will help the poor to be integrated into the mainstream of economy development and benefit from the process.
     
       Why microfinance is segmented by the financial system?
       First, from the regulation point of view:
1、The traditional microfinance is existed for a long time in form of moneylenders and other kind of private or collected activities. They are always be forbidden by the government because they are too small, unstable, high interest, high risks and difficult to be supervised. The illegal status of microfinance makes supervision and regulation be almost impossible.  
2、The modern microfinance makes regulation be possible by innovations based on modern corporative institution and financial management. But it is still a new creation, needs time to be recognized by regulatory authority and financial system. This recognition process includes not only the change of attitudes among financial system, but also the improvement of microfinance institutes themselves.
Second, from the business point of view:
1、The business of conventional banks is based on the credit system and their approach is collaterals and guarantees. So that the poor and the other clients who cannot provide collaterals and guarantees are always be kept out of the financial services. And the services for these clients is also segmented.
2、Although the modern microfinance has find the way to control the risk on lending to the poor, the price paid is the high operational cost. That means, even though the conventional banks dispel the misgivings of risks on lending to the poor, they will still be terrified by the high cost.
 
How to integrate the microfinance into the financial system?

Between the two aspects mentioned above, the legal and policy arrangement is comparatively easy to deal with. The key issue is how to make the MFIs can be supervised and regulated. There are several conditions:

1、The organizational structure of the MFIs shall be in conformity with the principle of modern corporative institution;

2、The financial management must be in accordance with national and international standard;

3、The management staff must be professional;

4、Financial products must be mature and stable;

5、Quality of loan portfolio must be high and risks must be low.

The international and domestic best practices show that it is possible for MFIs to realize the above conditions for legalization. The regulation on microfinance might not be the same as on the conventional banks. International experiences have given some cases of specialized regulation arrangement on MFIs. Actually, the financial regulation system in China is under the decentralization process, supervision and regulation become more specialized. 

Considering the present situation of MFIs in China, the regulation policy can be arranged in three levels:

a.       Integrate the microfinance business operated by the existing financial institutes into the supervision and regulation system, and encourage its development;

b.      For those MFIs already achieve financial sustainability, allow them to be registered as commercial banks or financial institutes by lowering the entry condition. Allow the establishment of new private microfinance banks;

c.       For those MFIs in form of NGOs and cannot be registered as banks at present, they need to be authorized on microfinance operation with limitation on saving. It is suggested to setup a microfinance association to conduct self-regulation among MFIs. It can also provide policy guidance and technical support, help the regulatory agency to conduct monitoring and statistics, and mobilize fund for the MFIs, finally improve them to be qualified for registration.

It is more difficult to integrate the microfinance into the operation of conventional banks. It will depend on the status of market competition and financial liberalization. RCC have successfully taken use of microcredit to improve their quality of portfolio during the reform. Because the high operation cost of microfinance is the main obstacle to the bank, it is better for the government to provide subsidies to the bank operating microfinance, instead of providing subsidies to the clients. The client subsidies will further segment the business from the financial system.     

       Even if the microfinance is integrated into the financial system in the future, some specialized microfinance institutes will still be play an important role in the market. The specialization will improve the efficiency, reduce risks and increase the innovation capacity. This will be also helpful to the achievement of the social development goals of microfinance development.

 (Jan. 2004)

以上的原因使得小额信贷作为金融创新至今没有被整合到金融体系当中。在上述的两个方面中，法律和政策的整合容易，业务的整合较难。

首先，在法律和政策方面，主要是解决新兴小额信贷机构的可持续发展能力与可监管性。有几个方面的要素：

1、机构的体制和治理结构，必须符合现代企业制度的要求；

2、财务管理必须遵循财务和会计准则，作到公开透明；

3、从业人员必须具备专业素养和职业精神；

4、产品必须要成熟和稳定；

5、贷款质量必须要高，风险要小。

从国际经验和国内小额信贷发展状况来看，小额信贷机构具备上述条件是有可能的，因此在适当的时候给予这些具备条件的小额信贷机应有的构法律地位并纳入监管体系是可以实现的。而且，所谓纳入监管体系，不一定是简单地纳入对现有银行的监管框架，可以是制定专门针对小额信贷机构和业务的监管制度。这在国际上已经有先例。事实上，中国金融监管机构实际已经纷纷从人民银行独立出来，监管工作也日益专业化。

在中国目前的小额信贷发展状况下，小额信贷的监管应该分以下几个层次：

1、应该将正规金融机构的小额信贷业务纳入银行业务监管范围并予以鼓励。

2、对于业已成熟但尚未合法化的小额信贷机构，降低准入的门槛，使其注册成为专业的小额信贷金融机构，允许开展储蓄业务；也可以允许创建新的小额信贷银行，并有针对性地加以监管。

3、对于大量以非政府机构形式存在但尚未具备注册条件的小额信贷机构，中央银行应该给予适当的经营权，限制其储蓄业务。同时，建立小额信贷行业协会，采用行业自律的监管方式，并提供政策协调、技术支持、统计监督、宣传筹资等服务，帮助它们逐步成熟和壮大，最终具备注册条件。对于那些把小额信贷当作手段开展社会发展项目的非政府机构，不必监管。

第二，在业务方面，要让传统银行开展小额信贷业务存在一定难度，但是也并非不可能，要看金融市场竞争和金融深化的程度。由于限制银行机构开展小额信贷的最大障碍是操作成本，要鼓励银行机构开展小额信贷，政府应该采用对银行进行补贴的方式，而不应该采用对客户提供补贴和担保的方式。因为补贴和担保会将小额信贷业务从银行业务中分割出来。

       即使小额信贷最终被整合到金融体系中，也会存在相对专业化的小额信贷市场和专业机构，因为专业化意味着效率的提高，意味着风险的减少，也意味着创新能力的加强。毕竟金融市场整合的目的是为了提高金融机构的效率、减少金融体系的风险，加强竞争，促进金融创新和深化。这也符合小额信贷发展的目标。

       （本文为作者学习和实践中的思考，供同仁们交流批判。曾经阅读的资料这里不一一列举。）2004年1月