Inner Mongolia finds solutions

Raising capital and supervision are regarded as two major problems in the development of micro-credit companies, but regulators in Inner Mongolia seem to have found solutions to both.

At the end of last year, Inner Mongolia autonomous region government signed an agreement with China Construction Bank, under which the lender is responsible for accounts related to micro-credit loans, providing wholesale business services and assisting the regulators in monitoring the capital flow.

"The bank can control loan accounts for micro-credit companies and manage these companies for the government. The bank itself can also benefit from the increased deposits and business," said Song Liang, director of the finance office of Inner Mongolia autonomous region.

Local governments are also cooperating with financial institutions, logistics companies and industry groups to further develop the micro-credit industry.

According to the plan, logistics companies and industry groups are being encouraged to set up micro-credit companies, while financial institutions should offer wholesale funds to support them. Current regulations allow banks to offer loans to micro-credit companies, but the total amount should remain below half of the companies' registered capital.

Some logistic companies, including Victoria Shopping Mall and Dongge Home Appliances Market, have already launched micro-credit firms in Hohhot, capital of Inner Mongolia.

One of the advantages these companies have is that they are in a good position to control risks.

For instance, the boss of Victoria knows the small firms in his mall very well, so he can select the best clients and easily control the risks, according to Song.

Local finance offices are quite cautious when it comes to selecting investors micro-credit firms, which is regarded a key process to avoid illegal fundraising and loan sharks rearing their ugly heads.

"We prefer local entrepreneurs with healthy finances. Meanwhile, experienced international micro-credit organization and financial institutions are also welcome, since they can help improve micro-credit companies' management and operations," said Shen Xiuwen, deputy chief of the finance office of Inner Mongolia autonomous region.

Through cooperation between industry and banks, lender get new clients with lower risks, industry groups stabilize supply chains and profit from lending loans, micro-credit companies get sustainable capital and creditors get micro-loans.

"This is the key to developing micro-credit companies. When all the factors are put combined, you can see good prospects for the micro-credit business," said Song.

21st Century Business Herald contributed to this article

(China Daily 03/02/2009 page5)