The Asian Development Bank (ADB), through its Poverty Reduction Cooperation Fund from the British Government, is supporting the establishment of micro-credit institutions in China.

ADB will help develop relevant micro-credit systems and regulatory guidelines, as well as a tendering mechanism to attract foreign and local investment, for two pilot sites - Jiangkou County of Guizhou Province, southwest China, and Dongsheng District of Erdos City of Inner Mongolia Autonomous Region, north China, the bank said in a statement.

The bidding processing kicked off on March 13, 2006.

China's first experiments on micro-finance practice began in the mid-1990s, over the past 10 years, micro-finance institutions had developed slowly and failed to cast any significant impact on the large market or micro-finance products in the country, said the bank.

Ying Qian, an ADB expert, said the lack of human resources, capital, and knowledge has been blamed for the slow development of micro-credit in China.

"The key constraint, however, is the inadequacy of the legal and regulatory environment for micro-finance," he said.

The Chinese Government and financial regulatory institutions are now carrying out a new attempt to introduce a competition mechanism into the rural financial sector by establishing a financial permission system for credit-only micro-finance institutions to operate. In the absence of a uniform policy for micro-finance legislation and regulation under which the private sector can apply for a micro-finance permission to operate anywhere in China, said the bank. China has proposed five pilot provinces in which they wish to allow private micro-credit institutions (MCIs).

"The development of clear and consistent national legislation and regulatory procedures and structures is critical to the establishment of a vibrant private sector concerning micro-finance industry," said Ying.

(Xinhua News Agency March 17, 2006)