Microfinance regulation in China and India

Abstract

The regulatory responses of Governments in different countries to emerging microfinance sectors have varied dramatically and as a result so have the outcomes for these sectors. As two of the fastest growing developing countries in the world over the last two decades, both with vast poor rural populations lacking access to credit, the potential demand for microfinance in India and China is enormous. Yet where the microfinance sector in India has been one of the fastest growing in the world with a diverse range of successful for-profit and non-profit microfinance institutions, the microfinance sector in China has failed to find its feet with microfinance institutions unable to attract commercial funding to expand or to achieve financial self-sufficiency. In this thesis I provide a comparative analysis of the regulatory frameworks for microfinance in China and India in order to demonstrate how the more restrictive and uncertain regulatory environment in China has hindered the development of the sector. In the next section of the thesis I bring the discussion of the regulatory frameworks into the broader political and economic contexts of the countries to answer the question: why have the Governments in India and China regulated the emerging microfinance sectors so differently? I argue that rising inequality and poverty alleviation plans conditioned the goals of the Governments for the microfinance sector and that the broader level of financial sector liberalization conditioned the feasible set of microfinance regulations for the Governments.