ADB Supports PRC's Push to Reform Rural Finance, Cut Income Gap with Cities

MANILA, PHILIPPINES - The Asian Development Bank (ADB) will support the People’s Republic of China’s (PRC) drive to develop modern, effective rural financial services that help address the growing income gap between cities and the countryside.

ADB will extend a technical assistance grant of $500,000 to improve the central bank's statistical system regarding rural finance, and to help the government formulate policies that will lead to the development of an inclusive, market-oriented rural finance system.

The PRC has long channeled public support into rural finance services. However, past measures have seen mixed results. A major drawback was the imposition of a government driven ‘top down’ approach which failed to improve institutional behavior or encourage the development of innovative new products. Policymakers and People’s Bank of China (PBC, the central bank) have also lacked detailed statistics, enabling them to respond effectively to the rural sector’s needs.

“One of the components of the technical assistance is to support the establishment of a statistical system at PBC for the proper monitoring of rural financial flows for policy-support purposes,” said Ying Qian, Principal Financial Sector Economist for ADB’s East Asia Department. He added that the current system only covers bank loans and in future it may be desirable to include data on deposits, remittances, and other forms of agricultural finance, including those from the informal market.

The project will research different rural financial services that could help government agencies develop policies combining a ‘top down’ approach with ‘bottom up’ innovations from communities. It will also look at how the gender-bias of current services could be improved to make them more sensitive to the needs of women.

In 2007 the country’s urban-rural income ratio increased to 3.33 to 1, its biggest gap since 1978, and the government is now focused on policy actions aimed at reducing that divide.

The Government is providing $200,000 equivalent for the project, which is slated to run from October 2009 to October 2010. PBC will be the executing agency.