While the World Maybe Flooded with Microfinance Loans, China Has A Different Problem

Recently, there have been much discussion about whether a Microfinance (MF) bubble is brewing. Articles in the Wall Street Journal and the Economist pointed out that in some MF markets, there have been an excess of credits, distorted lending incentives (agents are paid by how much they lent out, not how much repaid) and an increasing portion of the loans being used toward non-productive activities (e.g. weddings).

This may be the case somewhere, but there is little evidence that there is an excess of private capital in China's MFI market. Despite the high profile stimulus spending the government initiated earlier this year (nominally $600 billion, a more conservative estimate put it below $400 billion), there is little sign that the money has trickled down to relieve the private credit market (at least, not so much as to jump out to me when I found time to scan the landscape). I would imagine that the government may have budgeted some of the money as a public-funded MF pool. Yet, I haven't heard anything concrete to backup this assumption.

The fact that I have not heard any voice of dissent over the lack of stimulus in MF in China tells me two things -
1. The credit market is till tightly controlled by the government
2. MF lacks its own advocate in the leadership circle

On the first point, my belief is that the 1997 Asian financial crisis has left a lasting impact among Chinese decision makers. Somewhere I read the story that Freud became who he was all because of an incident when, as a boy, out of curiosity or mischief, he hid in his parents' closet and witness "how babies are made", so to speak. I suspect the trauma of witnessing S. Korea going down on its knees slowed the financial marketing liberalization for several decades at least.

On the second point, it is just consistent with the fact that China, as a polity, is a strictly top-down society. Civic organizations--being professional, communal or financial--are always looked upon with suspicion and kept on the margin.

I don't know when I am going to post the next entry. It has been pretty busy recently. I always wanted to do a comparison between Wokai and Kiva. Just to see where Wokai could improve (e.g. user experience, communications, etc.)