More comments on HSBC's rural bank expansion

Casey

Here's some more background about rural finance in China and a follow up on the HSBC Rural Bank article that Courtney posted in her last entry:

Traditionally, financial service providers have been isolated to urban areas in China's eastern costal provinces. Du Xiaoshan from the Chinese Academy of Social Sciences estimates that only a quarter of rural inhabitants have access to credit. There is also very little credit availabe for SMEs (small to medium enterprises) in rural areas. Most of the financial services in rural areas come from Rural Credit Cooperatives, the Postal Savings Bank, and the Agricultural Bank of China which are all state-owned banks.

Two comments about HSBC's Rural Bank expansion:

1. This a great movement towards developing rural economies. Since 1979, almost all investment has been focused in coastal urban areas. The coast has therefore developed rapidly, while urban areas have experienced static growth. Over the past 29 years, the gap between rural and urban areas has expanded rapidly and income inequality has gone from almost zero to rank as one of the most severe of all Asian countries. The only way that this this gap will begin to decrease is if there is a huge increase in investment and development in rural areas.

2. It's important to keep in mind that HSBC's Rural Banks are providing SME, agro-business loans and not microcredit. SME finacial services are definetly a complement to microfinance, but not a substitute.

Some Interesting Facts on current rural financial service providers:

Rural Credit Cooperatives

- Total portfolio of 1.58 Trillion Yuan
- 12% of total financial sector

Postal Savings Bank

- 1.48 Trillion yuan ($158 Billion) in savings deposits
- 36,000 branches in China
- Decided to begin microfinance pilot projects in 2006

Agricultural Development Bank

- 1 of China's Big 4 state-owned banks
- 2.5 Trillion Yuan in loans