1. SME finance in China • key trends in SME finance in China • Major obstacles to improve SME finance • Policy recommendations • Current development

2. Key trends in SME finance in China • Contribution by SMEs number 99% output 50% export 60% tax 30% jobs 70%

3. Key trends in SME finance in China • Limited or little access to capital market • Share of credit in main banking financial institutions: 16% • High NPL ratio compared to corporate lending • High reliance on internal and informal finance channel

4. Key trends in SME finance in China • SMEs funding problems • 66% of sample SMEs have difficulty to access to finance • The lack of funding is the main blockade to the developments of SMEs (IFC-CPDF survey) • Similar findings from various surveys as presented by Dr. Xu and Shen

5. Major obstacles to improve SME finance Macro obstacles: • Capital market lacks function of financing especially for SMEs • Insufficient competition in banking sector • Interest rate cap until recently • Address SMEs finance as a social objective, not a commercial business: Can SMEs afford high IR? • unfriendly social, legal, and credit environment

6. Major obstacles to improve SME finance Micro obstacles: • Banking Inst. lack of core credit tech. • Credit culture and credit mgt. policy not adaptable to SME lending • Information asymmetry • Poor corporate governance

7. Policy recommendations • Develop capital market • Increase the level of competition of the banking sector, push for down-market, more banking establishment • Promote commercial viability of SME lending: new way of thinking • Remove IR cap • Improve social, legal and financial infrastructure

8. Policy recommendations • Improve corporate governance • cultivate right credit culture and advocate institutional reform in credit area: talents and risk-based pricing • Capacity building in banking sector for SME lending • SMEs more open to lenders

9. Current development • Credit guarantee schemes • public and private owned: 4,000 • guarantee capability • funding resource • Banks suspicion on CGSs • Overall efficacy limited • Controversy over the effect of CGSs

10. Current development • Lending rate cap removed by central bank in Sept. 2004 • Pilot-trial project of lend-only MFIs in several provinces • Guideline on MSE Lending of Commercial Banking Inst. In July, 2005: a major revolution in introducing commercially sustainable MSE lending and promoting institutional and product innovation

11. Current development • Credit bureau • Improve legal infrastructure: Law on property, Law on bankruptcy, etc. • Gov. at local levels come to help improving the social and credit environment