China, People's Republic of: Rural Finance Development and Supervision

Sovereign Project | 42004-012

Summary

The Government of the People's Republic of China (PRC) has given higher priority to rural finance development issues in recent years in line with the policy goal of ?balanced development and creation of a harmonious society?. It has taken cognizance of the fact that rural financial market development requires further systematic public support. Pressure is mounting on policy makers to expand such support particularly through a range of fiscal measures. A major drawback of past public support measures was that they did not over time remove the need for further public support; they undermined incentives for better institutional behavior. The China Banking Regulatory Commission (CBRC), being the chair of the inter-agency rural finance development working group, requires assistance to understand in a systematic way how these policies have been conceived, formulated, implemented, and evaluated.

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Project Name Rural Finance Development and Supervision
Project Number 42004-012
Country China, People's Republic of
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 7187-PRC: Rural Finance Development and Supervision
Technical Assistance Special Fund US$ 400,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector Finance - Banking systems and nonbank financial institutions - Finance sector development
Gender Equity and Mainstreaming No gender elements
Description
Project Rationale and Linkage to Country/Regional Strategy

The Government of the People's Republic of China (PRC) has given higher priority to rural finance development issues in recent years in line with the policy goal of ?balanced development and creation of a harmonious society?. It has taken cognizance of the fact that rural financial market development requires further systematic public support. Pressure is mounting on policy makers to expand such support particularly through a range of fiscal measures. A major drawback of past public support measures was that they did not over time remove the need for further public support; they undermined incentives for better institutional behavior. The China Banking Regulatory Commission (CBRC), being the chair of the inter-agency rural finance development working group, requires assistance to understand in a systematic way how these policies have been conceived, formulated, implemented, and evaluated. CBRC is also keen to improve the regulatory system to ensure that its regulatory practices facilitate sustainable growth of rural financial services and to achieve a proper balance between supportive regulatory practices and the need to maintain a healthy and stable rural financial system.

The first key thrust of ADB assistance under the 2008 Country Partnership Strategy (CPS) is to support inclusive growth and balanced development. ADB?s indicative areas for interventions stipulated by the financial sector roadmap under the CPS included building an inclusive, market-oriented rural finance system and supporting policy and regulatory reform and strengthening financial supervision and coordination among financial regulators in rural finance. ADB has provided technical assistance (TA) projects to strengthen the regulatory framework and improve access to finance by rural residents. These include, among others, two TAs to strengthen CBRC?s supervisory capacity, and a TA project to support rural credit cooperative (RCC) reforms and development of microfinance institutions (MFIs).

The RCC system has been suffering from an unclear ownership structure and conflicts between policy and commercial orientations. There was an apparent conflict of interest at the level of the People's Bank of China (PBC, the central bank) and the CBRC as both the supervisor and administrator of the RCC system. The lack of a proper regulatory framework for other types of rural finance organizations such as MFIs has become a major impediment to alternatives to the RCC system in rural financial markets (RFMs). The proposed TA entails a continuation of ADB's ongoing support for developing RFMs.

Impact Increased access to financial services for a larger proportion of the rural population that is currently nderserved or un-served by rural financial markets
Project Outcome
Description of Outcome Improved policy formulation, institutional coordination, and regulation in rural financial markets with sufficient outreach both in the depth and breadth of rural financial services
Progress Toward Outcome Changes have already commenced, particularly in increasing institutional options for rural finance. State Council and both PBC and CBRC management are reviewing progress, options, and innovations in the financial sector and particularly for rural finance, to revise market regulation in 2011 and 2012. This area is a key topic in the new 12th Five Year Plan and in the new Outline for 2011-2020 from the State Council Leading Group for Poverty Reduction.
Implementation Progress
Description of Project Outputs

A comprehensive report on public support measures with pragmatic recommendations;

An improved set of regulatory practices to promote sustainable rural credit; and

Staff of the China Banking Regulatory Commission (CBRC) at head office with a deeper understanding of smart public support design and implementation and CBRC local level staff with improved capacity to implement regulatory practices suitable for sustainable rural credit.

Status of Implementation Progress (Outputs, Activities, and Issues)

The draft comprehensive final report is complete. Additional changes will be made and the report will be final. To facilitate an improved set of regulatory practices, progress is being made on three key policy notes on (i) community reinvestment, (ii) supervision of village banks, and (iii) value chain finance (financing products from initial input production to final sale through all producers, processors and wholesalers). Additional policy briefs in both languages may be developed in innovative approaches to rural finance, governance conflicts, farm credit delivery, branchless outreach, secured transactions, burden of regulation vs regulatory burden.A visit to the USA for seven days is planned to meet with senior policy officials in agricultural credit cooperative operations, farm groups, and the US Treasury. The CBRC objective for the study tour is a better understanding of how policy makers inform themselves before making policy in rural and agricultural finance including CRA, credit, cooperatives, and insurance arrangements, and how US leaders address emerging problems in these areas.

The final report was completed as planned, and all planned activities were also completed.

The project was completed on 30 November 2012.

Geographical Location PRC
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design Potential implementing agencies have been closely involved in the formulation of the project through ADB consultations.
During Project Implementation Farmers have been intensively surveyed and field consultations with local governments from township to province level have taken place in multiple provinces. Financial institutions have also been reviewed and information gathered from them. Other academics have been engaged.
Business Opportunities
Consulting Services The TA will engage two international and two national consultants for a total of 10 person-months, including the team leader and international rural finance development specialist (2.5 person-months) and an international rural finance regulation and supervision specialist (1.5 person-months). The two international consultants will be supported by corresponding national consultants, including a national rural finance development specialist (3 person-months) and a national rural finance regulation and supervision specialist (3 person-months). There will be a separate budget to engage additional international and national specialists for specific technical areas during TA implementation as the need arises. The consultants will be selected and engaged on an individual basis in accordance with ADB's Guidelines on the Use of Consultants and other arrangements satisfactory to ADB on the engagement of national consultants.
Responsible ADB Officer Seung Min Lee
Responsible ADB Department East Asia Department
Responsible ADB Division Public Mgt, Financial Sector and Regional Coop Division, EARD
Executing Agencies
China Banking Regulatory Commission Mr. Xing Guijunxinnguijun@cbrc.gov.cnChina Banking Regulatory Commission
Timetable
Concept Clearance 30 Jun 2008
Fact Finding 20 May 2008 to 27 May 2008
MRM -
Approval 18 Nov 2008
Last Review Mission -
PDS Creation Date 05 Aug 2008
Last PDS Update 19 Sep 2013

TA 7187-PRC

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
18 Nov 2008 29 Dec 2008 29 Dec 2008 31 Dec 2009 30 Nov 2012 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
400,000.00 0.00 150,000.00 0.00 0.00 0.00 550,000.00 18 Nov 2008 339,891.28
Title Document Type Document Date
Rural Finance Development and Supervision TA Completion Reports May 2013
Rural Finance Development and Supervision Technical Assistance Reports Dec 2008

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation

No documents found.


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