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Speeches & Transcripts

Remarks for the International Conference on Rural Finance in China

September 14, 2010


Robert B. Zoellick Beijing

As Prepared for Delivery

Remarks for the International Conference on Rural Finance in China

 

Robert B. Zoellick

President, The World Bank Group

 

Beijing, China

September 14, 2010

 

Honorable Minister Chen Xiwen, Honorable Vice Minister Li Yong, Distinguished Guests, Ladies and Gentlemen,

 

Thank you for joining this conference. I want to extend a special thanks to the Ministry of Finance which has organized this event together with the World Bank Group. In particular, Minister Chen and Vice Minister Li, thank you for coming personally to share your thoughts on rural development and rural finance.

 

This is an opportune time for us to renew and expand our joint commitment to rural development following China’s remarkable economic success over the past three decades. Between 1981 and 2004, China succeeded in lifting more than half a billion people out of extreme poverty.  This is certainly the greatest anti-poverty achievement in history. 

 

The Challenges of a Balanced Urban-Rural Development

 

In parallel, China has been undergoing a rapid urbanization process. In 1980, the share of the urban population in the total population was less than 20%. Today, it is over 45%. This urbanization rate is expected to reach 60% in about 15 years.  Twenty million people a year are leaving rural areas; at the same time, the Chinese population is aging. These dual developments will lead to profound economic and social changes in rural regions.

 

In a country as large and complex as China, proper management of the urbanization process is challenging. Urban-rural transformation will require a comprehensive and sustainable approach to rural development, and a balanced increase in rural and urban living standards, benefitting all people. In this regard, a package of efforts could prove significant: steps to increase agricultural productivity; reform gradually the land tenure and the Hukou systems; improve public services; assist small farmers to participate in modern agri-business value chains; expand access to financial services; and manage natural resources responsibly. For our part, the theme of "balanced rural-urban development" has emerged as one of the top priorities for IFC and the World Bank operations in China. A key pillar of our comprehensive strategy to support economic growth and social development in rural areas is financial sector development.

 

The Need for Rural Finance

 

Indeed, financing is a critical element for comprehensive, inclusive, and sustainable development.  Effective and easily accessible financing networks can stimulate investments in agriculture, create non-farm employment, and expand economic opportunities for rural people.

 

Let me offer a practical example to illustrate the power of finance. In December 2007, I traveled to Nanchong, Sichuan Province, to open a microfinance institution, called MicroCred Nanchong, which was developed with the assistance of IFC. I also visited one of the borrowers of the company: a pig farmer who runs a small farm on the edge of Nanchong City. Today, with the support of several loans, this farmer has expanded his production by about 10 times and moved to a new location with more advanced facilities. Interestingly, although he remains a client of MicroCred Nanchong, he has been able to borrow from a traditional commercial bank. He is currently developing new business lines.

 

Yet access to financial services by rural residents and micro and small businesses is still difficult in China. Financial inclusion remains a major development challenge for the country. For example, rural, micro and small business borrowers mostly borrow at their personal risk as they are typically not incorporated. Developed banking markets have a ratio of 0.82 bank loans to each  adult. In contrast, China has an estimated figure of 0.12. In fact, in most rural areas, there are only a few rural financial services providers located in the County or Township centers with limited competition. I also understand that there are still more than 2,000 Communes and Townships which do not have any financial services outlets.

 

We would very much like to see the emergence and growth of an inclusive and sustainable rural finance industry in China. This could be one of the stepping stones on the way to achieving a harmonious society.

 

Considering the size and diversity of China, scaling up rural finance will require the development of many dynamic, viable and innovative private sector financial institutions, which are willing to serve rural households, rural micro and small businesses, and agri-business enterprises. Government support to rural finance can best be oriented towards: first, the development of public goods and financial infrastructure; and second, the strengthening of an enabling environment for rural financial services operators.

 

Role of the World Bank Group

 

The World Bank Group has made substantial efforts to promote inclusive and sustainable rural finance in China. In the past several years, our team has held discussions with policy-makers and disseminated best practice knowledge in the market, which has contributed to recent policy and regulatory progress. More specifically, the World Bank has helped to rationalize the interest rate regime, supported rural credit cooperative reforms, and implemented a pioneering project for 12 commercial banks to downscale to micro, small and rural borrowers.

 

IFC has helped to develop and expand seven microfinance institutions related to rural finance through its advisory services unit in China. IFC has also invested about $120 million in 11 rural finance operations. An efficient combination of advisory and investment services has enabled IFC to help create the first foreign-invested microcredit company, the first Sino-foreign village and township bank, and the first national microfinance NGO transformation company in the country. These are considered ground-breaking transactions. A number of IFC investees have been able to establish themselves as the good practice leaders in the industry.

 

Going forward, I would like to see more efforts by both the World Bank Group and Chinese partners to bring financial services to those at the very bottom of the income scale. China is an incomparably large market for micro and rural finance with more than 700 million people in rural areas. I believe that, with the support of the Chinese government and other stakeholders, there is potential to scale up our work in this field. The strength of the World Bank Group is in its global expertise and knowledge. In China, our focus on rural finance in the next few years will be directed to further improve the policy and regulatory framework, assist the deeper reforms of the rural credit cooperative system, develop model institutions with positive demonstration effects, and build up national and wholesale operators that could serve rural clients in scale.

 

Conclusion

 

In conclusion, we need to have a comprehensive, integrated and sustainable approach towards rural development in an era of rapid urban-rural transformation in China. Among the several instruments that could be used to accelerate rural development, one critical instrument is the development of rural finance. Rural households and businesses will benefit greatly from better and competitive financial services. To do that, a rural finance industry must be inclusive and commercially sustainable.

China has the opportunity of developing good models of inclusive rural finance that other countries could emulate. The World Bank Group will be proud to work with you and to support your endeavors.

 

Thank you.

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