Essay: Development of the Chinese microfinance company process

Abstract
Purpose of the dissertation
This dissertation sought to assess the development of the Chinese microfinance company process and the future prospects. More so, the study analyzed the relationship between the microfinance institutions and the market.
Methodology used in the study
The study was conducted in three main stages: the study presented the current microfinance services and the institutions in China and identified the challenges faced by these institutions. Secondly, the study presented literature on the microfinance systems around the world and looked at the development of microfinance in China. Finally, the study conducted secondary studies based on the interpretative and realism philosophy to collect data that addressed the study objectives as presented in the study. This methodology allowed the researcher to perform inductive studies and analyze the findings using the qualitative analysis studies. The secondary material was collected from previous literature, studies, articles and journals.
Study findings
The study found out that microfinance has significantly grown in China since its inception. It was also found that the microfinance institutions were meant to improve the economic status of the poor people in rural areas. However, the findings show that while there is considerable growth, the regulatory frameworks and policies have not favored the continued and rapid development of these institutions in China. For instance, few are able to access the services offered as many of these services are illegally given to clients affiliated with the communist party. However, in order to address these challenges, the study found out that it is important to change the current regulatory systems and improving the technology used in the operations of these institutions.
Implications of the study
The findings made from the studies are based on the secondary research conducted from various original studies. On the basis of these findings, it is evident that their applicability is significant beyond China. This involves the changing of the regulatory frameworks, innovation and use of social responsibility programs to improve their markets.
Table of contents
Abstract 2
List of Figures 4
Chapter 1 Introduction (1017 words) 5
1.1 Introduction and Background to the Study 5
1.2 The research problem 5
1.3 Aims and objectives of the study 6
1.4 Research questions 6
1.5 The relevance of the study 7
1.6 Structure of the dissertation 7
Chapter 2 Literature review (3052 words) 8
2.1. Introduction 8
2.2. General Context of Microfinance 8
2.3. Microfinance in China 10
2.3.1. History, Setbacks, and Gains in the Development of Microfinance in China 10
2.4. The Current and Future Prospects of Microfinance in China 13
2.5. Conclusion 15
Chapter 3 Research methods (1530 words) 17
3.1 Introduction 17
3.2 Research purpose 17
3.3 Research philosophy and perspective 17
3.4 Research Approach adopted 18
3.5 Qualitative vs. Quantitative study 18
3.6 Research methods used- secondary research methods 19
3.7 Sampling method 20
3.8 Data analysis 20
3.9 Validity and reliability- triangulation 20
3.10 Ethical concerns 21
3.11 Limitations and delimitations of the study 21
3.12 Conclusion 21
Chapter 4 Empirical Results (3561 words) 23
4.1 Introduction 23
4.2 Results and Discussion of Findings Based on the Research Objectives 23
4.3 Conclusion 31
Chapter 5 Conclusion (1017 Words) 33
5.1. Introduction 33
5.2. Conclusions 33
5.3. Implication of the study 34
5.4. Recommendation 35
References 36
List of Figures
Figure 1 Representation of the microfinance structure by Zhang (2005) 25
List of tables
Table 1 The Market Share of Financial Institutions in China as of 2010 23
Table 2 Original view by Zhang (2005) on development of microfinance in China 24
Table 3 The Number of Microfinance Institutions in China as of 2007 and by 2012 24
Table 4 The Changing Interest Rates in the Microfinance Institutions in China between 1991 and 2011 30
Total maximum word count 10,175 words 37 pages (double spaced, 275 words per page)
Style: Harvard
US English
Chapter 1 Introduction (1017 words)
1.1 Introduction and Background to the Study
The overall framework of the Chinese financial system comprises of the banking institutions, the insurance sector, security operators and the regulatory authorities (World Microfinance Forum Geneva (WMFG), 2008). Meanwhile, the banking institutions are categorized from policy banks to state-owned commercial banks, urban commercial banks and rural banks (WMFG, 2008).
Micro-financing in China can be traced to the rural banking institutions, and they are involved in the provision of financial services for the middle and low-income populations that cannot get loans from traditional banks (Wang, 2013). According to the author, the supply of microfinance and diversification of microfinance or the development of microfinance can be traced since the early 90s. These banking institutions were specifically started by the Chinese government with an aim of alleviating the existing poverty levels in the rural areas (Wang, 2013). Those microfinance institutions were meant to do this through programs that would revitalize rural systems, create a balance in growth and ultimately contribute towards achieving the millennium development goals (Yuqing, 2006). These programs include those of provision of subsidized credit loans and other informal loans to customers (Yuqing, 2006).
Meanwhile, these financial institutions have not been able to grow as expected. In fact, as of 2008, with about 900 million people in rural areas in China, about only 70 million people could access these microfinance institutions and that many of these customers could not meet all the obligations set by the institutions (WMFG, 2008). These institutions have, however, continued to offer subsidized credit to customers despite the constant growth of defaulters (Chen, 2006). However, with caution employed in the provision of credits to the customers in these rural areas, there has been an influx of non-governmental organizations termed as NGO-MFIs offering similar subsidized credit to the rural customers (Yuqing, 2006). More so, there has been increased reliance on these micro financial institutions on internal and informal channels as many of them have not been able to get development funding through banks (Chen, 2006).
1.2 The research problem
In China, microfinance institutions were introduced as an innovative tool to alleviate the existing large poverty levels of the rural areas (Yuqing, 2006). Despite the introduction, not much of the rural financial market is served by these institutions. Actually, the Chinese finance organizations operate with complicated mechanisms. These have been blamed for the slow growth of the rural areas in China. Particularly, it is evident the country is longing for a potentially bright future (Chen, 2006; Yuqing, 2006). There is growing fear if financial instability as the microfinance institutions has not been on unequivocal success because the main purpose of their introduction has not been addressed. In fact, poverty alleviation is still uncertain as these units are still facing constraints towards development (Yuqing, 2006). According to Chen (2006), while the rural areas have the majority of customers, a fraction of these people are able to access the microfinance institutional credits. Particularly, these institutions have not grown significantly in the vast western rural areas, and this has made the access to subsidized credit a major issue (Jinpu and Jun, 2006). In addition to this, those rural dwellers who have had the opportunity to access these credits have either failed to repay them in time or have defaulted on the loans. This could be as a result of different interesting variations, ratings and informational constraints (Jinpu and Jun, 2006). Additionally, the larger financial institutions have made it difficult for the existing microfinance institutions to access development loans (Yuqing, 2006).
However, if these issues addressed, it is expected that not only will the Chinese microfinance institutions develop further, but also poverty reduction will be evident in China. Ultimately, with the help of these institutions, there will be sustained microfinance and improvement in the livelihood of people in China.
Therefore, this paper explores the development of China’s microfinance company process and future prospects, and the relationship between the microfinance companies and the market.
1.3 Aims and objectives of the study
1. To evaluate the development of microfinance in China
2. To assess the development of China’s microfinance company process and the future prospects
3. To evaluate the extent to which the relationship between China’s microfinance companies and the market
1.4 Research questions
This study sought to answer the following research questions:
1. To what extent has microfinance developed in China?
2. How has the Chinese microfinance company process developed and what are the various plans and prospects addressed in these companies?
3. What is the relationship between China’s microfinance companies and the market?
1.5 The relevance of the study
This paper will give the reader an opportunity not only to understand the development of the Chinese microfinance institutions but also understand the aspects of the microfinance institutions in China. In addition to this, the findings made from this study are of significance to microfinance and other financial institutions in China and around the world. Specifically, these institutions can employ the processes identified and the factors to consider when seeking to expand or start in new markets. The study suggests the strengths, weaknesses, opportunities and threats that could be important to consider when managers in business institutions are making decisions to develop new and unique prospects to meet their future targets. Ultimately, the study gives a conclusive understanding of the development, current prospects and future prospects of China’s microfinance institutions, which would bring much insight to the customers.
1.6 Structure of the dissertation
The first chapter as presented has presented the research problem besides providing the research objectives for the study. The chapter introduces the study by identifying the main problem and the aim of the study.
The rest of this paper is organized as follows. Chapter two is the literature review that adds and analyzes the relationship between various review extracts from different authors concerning the purpose of the study. Chapter three provides a description of the research methodology used to collect the data for the study. Chapter four reports the results obtained during the study. The chapter also analyzes the findings made from the study and discusses the findings made during the study. Finally, chapter five summarizes the findings and draws further conclusions of the study.
Chapter 2 Literature review (3052 words)
2.1. Introduction
This chapter presents the literature review that analyses various extracts from findings, reviews and observations from different authors concerning the main purpose of the study. The chapter is therefore organized to address the research objectives designed for the study. In particular, the literature presents an array of views on the development and prospects of microfinance in China. In addition to this, the chapter provides an in-depth understanding of the Chinese microfinance institutions in terms of the advancement, success, failures, the mitigating factors and the probabilities of advancement and success in the institutions. This chapter is therefore significant as it presents the development of these Chinese microfinance institutions through an extensive view of the overall landscape of the institutions while analyzing the likelihood of advancement as presented from different studies, articles, journals or books.
2.2. General Context of Microfinance
To begin with, Wrenn (2005) looks at microfinance as an informal financial sector. Specifically, Wrenn (2005) microfinance ‘is the overall provision of financial services to the low income earning people who are poor or self-employed. Similarly, another author: Singh (n.d.) posits that microfinance is an attempt to improve the access to small deposits and small loans for the poor people who seem neglected by banks. The agreement in the presentations by these authors shows that microfinance involves the financial services including savings, credits, insurance and other payment services meant to help improve the living conditions of individuals.
On the contrary, based on the book ‘Microfinance Handbook: An Institutional and framework’ by Ledgerwood (2014), microfinance involves other social services such as: group formation, development of self-confidence, training on financial systems and other management capabilities. While this is true, the author seems to be adding to Wrenn (2005)’s and Singh (n.d.)’s descriptions of microfinance. These descriptions can be summarized by saying that microfinance involves the provision of financial services such as savings, credit, insurance and payment services together with other social services such as investment collateral, guarantees, and training for those people who find it hard to access formal banking services. Further, the literature presented shows that the microfinance institutions provide financial services to poor people from both the urban and the rural sectors, who are unable to obtain similar services from the formal financial sectors. For instance, Cull, Demirguc-Kunt and Morduch (2008) point out that microfinance has been extensively applied as a tool to mainly alleviate poverty by providing the poor with small loans to the poor in different places around the world. This literature addresses the main concept of getting the similar forms of financial advantages that are given to other people in the banking sectors (Cull, Demirguc-Kunt and Morduch, 2008). The authors posit that with microfinance, there are effective procedures to provide help for the poor with an aim to deal with the vulnerability that comes with poverty (Cull et al., 2008). However, one limitation of this presentation is that the authors point out the provision of credits and loans while not presenting the other services such as savings.
Meanwhile, while the authors seem to address the services, one setback is the overall interchangeability of the terms microfinance and microcredit in many countries (Wrenn, 2005). However, a further look at the literature by the same author, it is evident that microcredit is a component of microfinance (Wrenn, 2005). For instance, the provision of credit to the poor is microcredit while the non-credit services such as insurance and savings also fall under the components of microfinance.
The differences between the views on microfinance as presented above by these authors point out several ideas. For instance, microfinance involves the systems started by different governments around the world to alleviate poverty (Singh, n.d; Wrenn, 2005). On the other hand, there are two main services that are offered by microfinance institutions. Firstly, these institutions offer microcredit (Wrenn, 2005). Secondly, microfinance involves the overall procedures employed by these financial institutions to offer microcredit, savings, and other services such as savings (Wrenn, 2005). More so, the terms microfinance and microcredit seem to be used interchangeably despite the clarity of the differences that exist (Singh, n.d; Wrenn, 2005). In addition to this, the literature provides less information on the exact number of microfinance institutions in the world, the number of people served by these financial institutions and the different characteristics in the microfinance systems around the world.
However, whilst these views are evident, the authors: Fukui and Llanto (2006) and Ledgerwood (2014) assert that there are various models used by microfinance institutions. Particularly, Fukui and Llanto (2006) and Ledgerwood (2014)’s literature shows that the main models are village banks, rotating savings and credit models and solidarity group models. According to Fukui and Llanto (2006) and Ledgerwood (2014), the village banking model is controlled at the community level. The authors posit that they are banks meant to improve the social status of individuals through loans and credits. On the other hand, solidarity group models are similar to village banks (Hammill, Mathew, and McCarter, 2008). However, the two models differ as the village model is dependent on the community while the solidarity group model is created through group peer influences (Fukui and Llanto, 2006; Ledgerwood, 2014; Hammill et., 2008). According to Hummill et al., (2008) and Wrenn (2005), the solidarity group model is made possible when the members collectively guarantee one person and these members are allowed to get these loans when one person clears the other loans with the financial institution. While this is true, the authors agree that the group models are important in that they present a platform for social networking in different social levels (Hummill et al., 2008). For instance, the solidarity model allows the individuals to have a peer level of socialization while the village banking model allows different social groups to enhance their social status in the community. Increasingly, the rotating model is a savings and credit model just as the other types of microfinance models (Ledgerwood, 2014; Wrenn, 2005). The difference is that the rotating savings and credit model is formed when group members come together and make cyclic contributions towards a common ground (Ledgerwood, 2014; Wrenn, 2005). It is mostly formed by neighbors, friends and they help with social interaction (Ledgerwood, 2014; Wrenn, 2005).
These models and literature on microfinance seem to show the similar systems used in the Chinese microfinance institutions.
2.3. Microfinance in China
2.3.1. History, Setbacks, and Gains in the Development of Microfinance in China
In order to understand microfinance in China, it is important to look at the historical perspectives of its development.
Previous research has shown that microfinance in China was introduced by the Chinese government to act as the mechanisms and tools for long-term development (Yuqing, 2006). Many of these studies show that with the microfinance institutions, China was on the road to achieving unprecedented success in her economy and social aspects beginning from 1978 (Yuqing, 2006). However, these studies do not seem to address the historical development of the microfinance institutions. A clear explanation of the development of these institutions in China can be seen addressed by authors such as: Rahman and Luo (2011) and Xi, Pingping and Yunhua (n.d.). Particularly, Rahman and Luo (2011) studied the development process of banks and microfinance institutions in China.
According to Rahman and Luo (2011), microfinance in china was introduced as institutions for financial aid and crediting citizens specifically for poverty reduction. Similarly, based on Xi et al., (n.d.)’s literature material, microfinance institutions (MFI) were introduced to provide for the poor the supplementary services such as deposits, insurance, education, marketing, life awareness services and other remittance services. The authors: Rahman and Luo (2011) and Xi et al., (n.d.), seem to agree that the MFIs were introduced as an important tool for all social groups in china and particularly the poor to access finances. Further, according to Rahman and Luo (2011), the microfinance institutions were meant to act as important tools for reducing poverty and issues of inequality just like in many countries around the world. On the other hand, the authors of the Economic Intelligence Unit (2007) presented in their literature that these financial institutions were begun earlier as projects such as ‘North Grassland’ and ‘Stock Broking Development’ projects that were implemented in the early stages of 1981. The authors assert that at the early stages, the microfinance were merely an aid and toolkit of international agencies to provide aid to the Chinese people (The Economic Intelligence Unit, 2007).
The literature by Rahman and Luo (2011) points out that among the earliest microfinance systems were institutions such as the ‘Yixian Funding the Poor Cooperatives’ that were operated by the non-governmental institutions in China. However, while these institutions were meant to address a similar threshold as that of the microfinance institutions around the world, their effects were not positively adding to the national economy (The Economic Intelligence Unit, 2007). However, with the Chinese government encouraging the development of financial policies that addressed the opening of the microfinance institutions as of 1978, significant success was identified (Rahman and Luo, 2011). For example, according to Rahman and Luo (2011), signs of success in poverty reduction and rural development had been seen the level fall from 15% in 1984 to about 2% by the end of 2007. Rahman and Luo (2011) articulate this success to the development of the microfinance institutions through the governmental liberal policies that covered the articulate financing of the underdeveloped regions. With such presentations by the authors, it is evident that with such success in development systems of the poor people and regions of China through the introduction of the microfinance institutions. One limitation of Rahman and Luo (2011)’s literature is that the authors seem to only point out the results made in the country with the introduction of the microfinance institutions. The authors assume or fail to show the work done by these institutions as they developed into performing institutions. In fact, one question that is not addressed concerns the setbacks and positive factors seen as the growth of the institutions was seen in China. Perhaps a good explanation of the development of financial institutions as presented by the WMFG (2008) could offer a clear process of the development.
According to the WMFG (2008), the success presented by Rahman and Luo (2011) appear to have largely been because of the introduction of the microfinance institutions that aimed at extending their services (Financial services) to areas where the state banks were previously very inactive. The literature by the WMFG (2008) surmises that while growth was evident, the microfinance institutions were faced with difficulties in different areas such as the market landscape, funding from the other banks and regulation of other institutions with similar activities. For instance, between 2001 and 2005, millions of the Chinese people had not significantly benefited from the rapid growth as almost a fifth of the population were still living in poverty (Xi et al., n.d). More so, these citizens earned less than 1.25 dollars per day (Xi et al., n.d). Of this fifth of the population, over 90% were from the rural areas (Xi et al., n.d). Despite these considerable difficulties, the microfinance institutions achieved much growth through new approaches employed by the government (Xi et al., n.d). For example, the government of China formulated policies that encouraged microfinance institutions along with national and international microfinance institutions to start their businesses in the country (WMFG, 2008; Xi et al., n.d). This approach by the government of China seemed to encourage market freedom to many microfinance institutions (WMFG, 2008; Xi et al., n.d). Increasingly, the policies introduced saw the government introduce laws that discourage non-financial institutions ‘de jure’ systems from giving financial services to people (WMFG, 2008; Xi et al., n.d). With this approach, many people in rural regions are now able to access credit and other financial assistance and there has been improved group lending systems, village banks and other individual banks (Xi et al., n.d).
Whilst the authors agree that the development of microfinance institutions has been a steep climb, the institutions are still not fully fledged to offer all the financial services as the state banks (Rahman and Luo, 2011). However, looking at Rahman and Luo (2011)’s study results, the introduction of policies that will fully allow the microfinance institutions to develop even further would be through recognizing them similarly to the state banks. In fact, such an approach to development would encourage the microfinance institutions to access the subsidies that state banks have, such as access to inter-organizational credit and funding from the state agencies (Rahman and Luo, 2011). Such progress would be a positive to further development of the microfinance institutions in the rural areas and would not only help address the state of the poor, but will cover a larger landscape (Rahman and Luo, 2011).
The views and findings from the various authors in this section seems to show that the microfinance institutions operate through the provision of credit facilities and offer the clients an array of repayment mechanisms that address different clients. Specifically, they help in the ensuring effective borrowing, where there is monitoring, provision of safety guidelines and repayment procedures besides offering other services such as incentives and savings for different groups. With this in mind, it is therefore important to address the prospects of microfinance institutions in China.
2.4. The Current and Future Prospects of Microfinance in China
Based on the literature presented by the WMFG (2010), it is evident that prospects are those practical and theoretical procedures that are being undertaken by the microfinance institutions when providing services to the clients. This addresses the prospects that systems employed by the microfinance institutions in order to achieve current and future targets (WMFG, 2010). Differently, according to Zhu (2013), the prospects represent how these microfinance institutions operate. To begin with, one issue at hand is the systems employed by the microfinance institutions in order to reach a larger rural population while enjoying an amazingly high rate of return on the loans provided (Zhu, 2013). However, even though microfinance in China has seen remarkable progress in the last few decades, it must not be forgotten that it is still at a nascent stage of development (WMFG, 2010). These are the outreach programs that ensure there is an improved and sustainable development of microfinance institutions. In fact, Zhu (2013) agrees with the report by the WMFG (2010) that these prospects are important in addressing the actions and plans put in place to ensure the operations of microfinance institutions are up to the plinth. The limitation of these views is that the prospects are not addressed in detail.
Contrarily, other authors: Rahman, Luo, Ahmed and Xiaolin (2012) assert that the concept of the prospects of microfinance in China can be addressed by looking at how the institutions operating in the rural areas of China are providing loans, insurance, savings, social services and other health education programs. The literature presented by Rahman et al., (2012) seems to be good as it evaluates the prospects in terms of what is happening and what is being done to ensure the microfinance institutions in China are reaching the pinnacle of their targets and the set Millennium Development Goals. According to Rahman et al., (2012), microfinance institutions around the world, specifically China, have designed different approaches to ensure they are successful through learning and cross-fertilizing the existing concepts from each other. These different prospects involve the approaches designed in group formation, service mechanisms, product differentiation and product diversity (Rahman, Luo, Ahmed and Xiaolin, 2012). One of the most important operational models is the one that involves the solutions to the existing regulatory programs as presented by (Zhu, 2013). The author presents that while the recent 2010 census showed that 31% of the poor accessed credit loans through the private and public partnership programs. This presentation shows that the microfinance institutions are engaged in partnership programs with the public financial institutions through procedures that allow the people to deposit and finance the operations of the microfinance institutions (Zhu, 2013). However, one setback is that the Chinese regulations do not allow such funding programs (Rahman et al., 2012). To surmise this, in an interview with the Shen Zen newspaper, Mao confirms that with such regulations, the institutions are having a negative impact on their development (Bai, 2011). Similarly, these views by Bai (2011) agree with Zhu (2013)’s reports that these are complicating the popular opinions of the main reasons for starting the microfinance institutions in China. According to Zhu (2013), the level of competition with the public banks has made the microloans to go up to about 300,000 Yuan in coastal areas. In agreement, the rate of loan repayment is still an issue with such a problem causing the resultant growth a problem. A solution to this can be found in the case presented on how the development of partnership programs is using the public systems to ensure that they are financially stable (Bai, 2011; Zhu, 2013). According to Zhu (2013) and Bai (2011), operating in such systems allows the transfer of such regulatory systems and authority, and eventually enables the microfinance institutions to start up, scale higher and get to new and larger markets.
On the other hand, the microfinance institutions are engaged in other social services with the Chinese (Bai, 2011; Rahman et al., 2012; Zhu, 2013). For instance, they are involved in education programs to farmers, fishermen, groups such as those for women and this has enabled the institutions to get a larger clientele (Zhu, 2013). Such prospects have allowed the microfinance institutions to diversify into different and unique programs that have ensured their potential sustainability (Zhu, 2013). Among such institutions are the cooperative societies, village and township financial institutions, lending companies and savings and credit programs (Bai, 2011; Zhu, 2013). Whilst these programs have enabled sustainability, the report by Rahman et al., (2012) agrees with Zhu’s views that with special financial programs like the special lending and credit, the microfinance institutions have been able to access the poor in many rural areas in China.
Despite the significant improvement, Rahman et al., (2012) point out that there are limited numbers of people in rural areas that are able to access these financial systems. In fact, the rural households and especially farmers, livestock farmers and fishermen of the 674 million poor people are still not able to access the services. To solve such negative areas, Chinese systems can use the procedures suggested by Zhu (2013) on the Bangladesh and Indonesia microfinance institution. For instance, in the Indonesia, the Grameen Bank has scouted and recruited locals, who are then trained on microfinance and this has enabled the bank to get to a larger market. Similarly the Chinese government could develop a well established and separate regulatory system for the microfinance institutions (Rahman et al., 2012; Zhu, 2013). Special lending and other services such as incentives to the clients such as the farmers, fishermen and the staff could ensure a satisfied clientele and ensure the progress of these operations (Rahman et al., 2012; Zhu, 2013).
2.5. Conclusion
In conclusion, this chapter has presented the development and prospects of microfinance in China by firstly addressing the concept of microfinance in different countries and around the world. In this case, from various views and literature, the review shows that microfinance is mainly a concept meant to improve the living standards of those who are unable to get the services offered by commercial banks such as loans, savings, and insurance. The literature further shows that these institutions offer other social services such as training and education programs. More so, the Chinese microfinance institutions have been analyzed in this section whereby the challenges and possible solutions presented from literature collected from journals, research material, and books. The literature posits that these institutions were developed in the late 70s in China, and they are faced with challenges of accessibility and funding. The literature further presents suggestions on how these institutions could ensure that they meet their overall targets and be able to be sustainable not only now, but also in the future.
Chapter 3 Research methods (1530 words)
3.1 Introduction
This chapter presents the research methods employed by the researcher in order to collect data and analyse the findings of this study. Particularly, this chapter addresses the techniques and methods employed during the collection of data that was analyzed in this study. In this case, the chapter presents the methods that were formulated and used to collect the findings as represented in the main research questions. These methods were selected based on their value in helping achieve the main objectives designed for this study. Specifically, the methods selected in this section helped the researcher to evaluate the development of microfinance in China. More so, these methods allowed the researcher to assess the development of China’s microfinance Company process and the future prospects besides evaluating the extent of the relationship between these institutions in China and the market.
3.2 Research purpose
The main purpose of this study was to assess the development of China’s microfinance company process and future prospects, and the relationship between the microfinance companies and the market.
3.3 Research philosophy and perspective
The research used the realism and interpretivism philosophy as presented by Saunders, Lewis, and Thornhill (2015). In particular, the realism philosophy enabled the researcher to account for the real and known phenomena and recognize the existing social systems concerning the development of microfinance in China while addressing the relationship that exist in the systems (Saunders et al., 2015). On the other hand, the researcher used the interpretivism paradigm that involved the social construction of the issues at hand (Saunders et al., 2015). Based on the views by Saunders et al., (2015), the philosophy allowed the researcher to use a subjectivist perspective that involved induction and deduction of the most efficient data that was important for the study. With these philosophies, the researcher was able to not only make an in-depth investigation but also to interpret the findings further while basing them on the reality as it is in China.
3.4 Research Approach adopted
The researcher opted to use the inductive research approach for this study. Based on the views by Saunders et al., (2015), the research approach enabled the researcher to create a comprehensive analysis of the findings made based on addressing all the issues in the secondary material that were related to the research objectives. With this approach, the researcher was able to identify not only the progress made by the microfinance institutions, but also adds recommendations for further development of these institutions (Saunders et al., 2015). More so, with this approach, the researcher was able to find out the gaps in the Chinese microfinance institutions and present further areas that need improvement. In other words, the approach ensured the researcher of the various gaps in the industry besides identifying various systems that would be significant when seeking to develop further into the Chinese markets (Saunders et al., 2015).
3.5 Qualitative vs. Quantitative study
According to Saunders et al., (2015), qualitative studies involve the studies that are based on inductive reasoning, interactive and systematic categorizing of findings for analysis. Contrary to this, the authors present that quantitative studies involve those studies that involve the use of deductive reasoning that is based on analyzing numerical findings. In other words, Saunders et al., (2015) seem to point out that qualitative studies involve the use of flexible data that involve making an in-depth inquiry on issues at hand. Saunders et al., (2015) suggest that qualitative studies can be achieved through the use of interviews or focus groups for primary studies and secondary studies that might have used such methods. In this case, with this study in mind, the qualitative study, as pointed out by Saunders et al., (2015), would involve reasoning to understand the Chinese microfinance and address flexible views about the process and future prospects, while looking at the relationship existing between the markets. On the other hand, the authors present that quantitative studies are used to make statistical findings that allow the researcher to make conclusions based on understanding a given population. Saunders et al., (2015) point out that the quantitative studies use variables such as percentages, standard deviations, variance, mean, mode or median, among other statistical inferences. Saunders et al., (2015) suggests that can help researchers make a precise measurement, quantity and confirm a given hypothesis. In this case, a quantitative study uses the questionnaires when finding data for the study (Saunders et al., 2015). Generally, with reference to Saunders et al., (2015)’s views, the use of these studies falls upon a continuum and vary based on the data collection methods and methods of analysis of the data. This study opted for the qualitative analysis of the findings made during the study. This allowed the researcher to perform an in-depth analysis of the findings made from the study.
3.6 Research methods used- secondary research methods
This study employed the use of secondary research methods as presented by Long-Sutehall, Sque, and Addington-Hall (2010). According to Long-Sutehall et al., (2010), this procedure involves the use of the already existing data to find answers the research questions that differ from those originally asked in the original studies. On the other hand, Charmaz (2006) points out that the secondary research methods involve the use data from already existing material such as articles, governmental and non-governmental websites, reports, journals and research materials and other grey literature material. Based on the main purpose of the study, the use of these secondary research methods allowed the researcher to achieve a narrative of discussion of the issues relating to the research questions (Long-Sutehall et al., 2010). This data from the secondary documents could, however, be from analysed or from materials that have not been analysed before (Charmaz, 2006). Increasingly, the secondary research methods offered the researcher an opportunity to facilitate important conclusions on the sensitive areas of the study besides being able to access the population used as the study samples in this context (Long-Sutehall et al., 2010). In addition to this, the use of secondary research methods for this study enabled the researcher to prioritize the main areas of interest that were significantly distinct from those in the original studies (Long-Sutehall et al., 2010; Charmaz, 2006).
Additionally, the secondary research methods were important in addressing the ethical areas of the study and allow the development of the approval that mitigated the distinct changes in time and the length of time involved in the analysis (Long-Sutehall et al., 2010; Charmaz, 2006). This was also important as the secondary material, and data collected ensured the researcher collected valuable information regarding the development process, the prospects of microfinance in China and the relationship that is in existence between these microfinance institutions and the larger Chinese market (Long-Sutehall et al., 2010).
With this in mind, the researcher collected data from existing literature, journals, articles and other archival materials such as reports and survey findings concerning microfinance in China (Long-Sutehall et al., 2010; Charmaz, 2006).
3.7 Sampling method
This study used the theoretical sampling technique. This technique involved the researcher making decisions to revisit already existing data and incorporate the data collected to expound on the developing category of information that was used in the study (Charmaz, 2006). This method allowed the researcher to collect data from an array of material spanning a length of time. The technique opened up a great potential to explore the experiences, views and feelings of these studies over time (Charmaz, 2006). In addition to this, the use of the theoretical sampling method ensured the researcher would make a thorough assessment of the data collected regarding the quality of the data and information that was available. This was done through analyzing the similarity and the significance of the data to the research objectives and to what extent the data would help answer the main research questions (Charmaz, 2006). With such assessment, the researcher was able to find the most appropriate information that offered the pertinent amount of details concerning the main purpose of the study (Charmaz, 2006). In this instance, the researcher ensured that the sample collected had sufficient information that was of interest to the study. This was achieved by looking and understanding the details of this material and assessing how full and complete this material would give the best results (Charmaz, 2006). Particularly, the researcher read through the information from the secondary sources sequentially and excluded the data based on their relevance to the main research objectives (Charmaz, 2006). This allowed the researcher to collect the most qualified data, and this helped in providing the most coherent details that addressed the research questions at hand (Charmaz, 2006).
3.8 Data analysis
For this study, the researcher employed the use of a constant comparative analysis method to do an in-depth analysis of the findings made from the study (Charmaz, 2006). In this case, as presented by Charmaz (2006), the researcher, particularly selected the data collected by addressing the rationale of each and looking at the differing paradoxical views in each case. This ensured the findings made were most appropriate when seeking to answer the main questions about the study. More so, with this analysis, the researcher was able to determine and create the conclusions and recommendations made from this study (Charmaz, 2006).
3.9 Validity and reliability- triangulation
The study opted to use the secondary research methods with the aim of addressing the triangulation of the tools used for the collection of data. The researcher used different sources and studies, articles, online literature, journals, and reports (Saunders et al., 2015). The use of multiple sources allowed the researcher to achieve triangulation of the research instruments by selecting the most appropriate data from the different material (Saunders et al., 2015).
3.10 Ethical concerns
The researcher ensured that the secondary material used for the study was identified using the most appropriate standards that was based on professional judgment (Long-Sutehall et al., 2010). This was particularly done in order to re-use the data from previous studies with an aim of not violating any original contractual arrangements with the primary participants. More so, the researcher ensured that all the secondary material collected for the study was of a great fit for the research questions at hand (Long-Sutehall et al., 2010). This was done through a comparison of the original research questions while also comparing them to the research questions of this study with the purpose of avoiding a shift from the original studies (Long-Sutehall et al., 2010). Further, there was specific consent for the materials used for the study through special requests made by the researcher for secondary analysis.
3.11 Limitations and delimitations of the study
The researcher anticipated difficulty in obtaining the most relevant information for the study. However, with the use of secondary material, the researcher was not only able to address the issues of an elusive population, but also address the issues of the most relevant and available data concerning the main purpose of the study.
3.12 Conclusion
In conclusion, the research was conducted based on the research methods that were based on the realism and interpretivism research paradigm. In this case, the researcher presents this chapter by addressing the methodology that was used to collect data for this study. In this case, the research was conducted using the inductive research perspective and that this was done by using secondary research methods. In particular, based on the views of Long-Sutehall et al., (2010), the research methods used for this study involved collecting data from already existing studies, reports, journals or other most relevant research material that would address the research question. This chapter further presents the methodology that was used to ensure that all the ethical factors were considered for the study while addressing how the researcher made sure all the expected limitations were identified and addressed during the study.
Chapter 4 Empirical Results (3561 words)
4.1Introduction
This chapter presents the empirical results obtained from the secondary research material used for the study. The data obtained is presented in order of the research objectives used in the study. The results obtained using the methods addressed in chapter 3 above are presented to address each research objective. This was done to address the main purpose of the study. Particularly, the study sought to assess the development of China’s microfinance company process and the future prospects, and the relationship between the Chinese microfinance companies and the market. Increasingly, this chapter discusses the findings made from the study with the aim of finding solutions, failures, and implications that are important when addressing the research objectives.
4.2 Results and Discussion of Findings Based on the Research Objectives
4.2.1 To evaluate the development of microfinance in China
. While the market is dominated mostly by the equitized banks, it is evident from the report presented by the CRBC (2010) that rural microfinance institutions have the third largest market share at 11.2% (Table, 1). These institutions include the rural commercial banks, rural cooperative banks and the rural credit cooperatives. However, based on the report, each of these institutions is very small. It is evident that these institutions are facing challenges of expansion, development and improvement in the rural areas.
Table 1 The Market Share of Financial Institutions in China as of 2010
Market Share of Microfinance Institutions In China as of the end of 2010
Type of financial institution Asset Value (In Trillion Yuans) Market Share (%)
Policy Banks 7.65 8
Equitized Banks 46.89 49.2
Rural Institutions (RCCs, RCBs) 10.65 11.2
Joint Commercial Banks 14.9 15.6
Others 5.6 5.9
Source: Based on Statistical Data from CRBC’s Annual Report (2010)
Further reading of the views by Zhang (2005)’s original studies, it further shows that with the rise in microfinance, two trends emerged in the late 1980s to the early 1990s. These trends were: the politically led reforms and the spontaneous development of unofficial institutions. According to Zhang (2005), the politically led reforms led to the creation of a framework called the official rural financial supply enterprises and organizations while the spontaneous development led to developing of unofficial institutions aiming for profits. The table below presents these views by the author in the original studies.
Table 2 Original view by Zhang (2005) on development of microfinance in China
Source Title Author/Year Findings
1 The System of Chinese Rural Finance Organization: Achievements, Shortcoming, and Institutional Renewal Zhang, 2005 Before reforms, China microfinance had a centralized system. People’s Bank of China was the overall leader. There was no independent system of rural finance. Microfinance was started late in 1978 with an impetus that gave rise to the need for marketing and monetization of the rural economy. Microfinance was developed in two trends i.e. the politically led freedom and spontaneous development of unofficial banks.
Further, the microfinance institutions had grown significantly by the end of 2007 and 2012 (CRDC, 2007; PBC, 2014). The village and township institutions and the rural commercial banks had grown tremendously from 19 to 800 and 17 to 337 (CRDC, 2007; PBC, 2014). Loaning and lending companies had grown from a total of 4 in 2007 to 14 by the end of 2012. However, the challenges that are evident in development, extension and improvement of these institutions have seen the rural credit companies’ decrease from 8,348 in 2007 to 1924 at the end of 2012.
Table 3 The Number of Microfinance Institutions in China as of 2007 and by 2012
Number of Microfinance Institutions in China 2007/2012
Institution 2007 2012
Rural Credit Companies 8348 1927
Rural Commercial Banks 17 337
Rural Cooperative Companies 113 147
Village and Township Companies 19 800
Lending/Loaning Companies 4 14
Source: Report from PBC (2014) and CRBC (2007)
The microfinance institutions evidently have problems such as autonomous management and irresponsible management (Zhang, 2005). However, the data further show that with 20 years of reforms, there have been rises in official and unofficial institutions that pose a need for improved competition. In order to understand the development and the structure of microfinance in China, the researcher sought to adopt the structure developed by the Zhang (2005). Particularly, the author uses the ‘rural financial institutions’ to describe microfinance in China. This is in line with the literature that shows that microfinance in China is majorly aimed at improving the economic and social systems of the Chinese people in rural areas. These are the areas that are mostly seen to have the highest number of people who cannot access the facilities offered by the commercial banks in China.
In this case, the researcher adopted the structure as used by Zhang (2005) shown in the figure below:
Figure 1 Representation of the microfinance structure by Zhang (2005)
The findings did show that the People’s Bank of China is the central institution that implements the policies that are used by the other financial institutions. These results show that the bank seems to assume the large burden of formulating and implementing the policies.
On the other hand, the researcher compared the findings made by Zhang (2005) with the findings made in the diagnostic study on microfinance and the financial sector in China by the Microfinance Initiative for Asia (MIFA) (2008). The original studies by the MIFA (2008) aimed at making a diagnosis of the challenges of microfinance and the financial sector in China. The original studies look at the structure of the Chinese microfinance and the financial institutions in general. However, the analysis made from these studies shows that the data collected from the diagnostic study point out possible evidence of the challenges facing the microfinance systems in China by looking at what is included in the development structures. Concurrently, in the history presented by Rahman and Luo (2011), the signs of success in poverty reduction and rural development had been seen the level fall from 15% in 1984 to about 2% by the end of 2007. However, there were setbacks such as the regulatory structures and which organizations were involved in the management and implementation of the microfinance systems. The original studies by the OECD (2005) also present influence from the political class when individuals would like to access these services. For instance, there were no specific regulations that address the procedures to use when the poor sought credit services. These views show the setbacks that the development structures in microfinance faced within a certain period of time. However, further, the literature by Rahman and Luo (2011) articulates the success to the development of the microfinance institutions through the governmental liberal policies that covered the articulate financing of the underdeveloped regions. While having a different purpose, the original studies from the secondary studies are important as they point out that the structure of development has continually involved two main policy makers for microfinance in China (MIFA, 2008). The data collected from MIFA (2008) show two policy makers, namely; the PBC and the Chinese Banking Regulatory Commission (CBRC). The data collected from the original studies show that the CBRC is involved with the village banks, while the PBC is involved with the policies in the microcredit companies (MCC) (MIFA, 2008). Particularly, the original studies point out that these policymakers have implemented a series of policies and are working with the provincial governments whereby the MCC allows the lending services and do not accept the deposits. The original studies show that the MCCs are now found in 5 provinces and that from the pilots conducted, there were 7 specific MCCs in China. These findings show the development structure from the PBC as the main regulatory financial institution. One implication of these findings is that with these institutions, there is a structural control of the operations of these microfinance institutions. Differently, the data collected by MIFA (2008) show that CBRC designed and formulated the strategies to enter the microfinance systems in the latter than those by the PBC. 2006. These studies show that the CBRC manages the village and township banks and that by the end of May, 2008, there were 25 village banks and 9 microcredit institutions. The data, however, shows that only 11 commercial banks offer microfinance services. This shows the invasion of the commercial banks in the rural areas through the development of microfinance institutions.
The data from these secondary studies lack clear documentation and data on the specific numbers and the demographics of the customers. However, it is evident that provinces such as Langzhou, Taizhou, Jiujiang, Baotou, Guiyan, Guilin, Deyanq, Jingzhou, Daqing, Quijang and Chonging have seen the development of these microfinance institutions (MIFA, 2008; Zhang, 2006). This posits the notion that a very small percentage of the rural provinces is getting few microfinance services in China. Perhaps the main challenges that face these institutions is that of these institutions, the outflow of funds from the rural outlets through the formal organizations seem to be in the decline. This seems to be closely related to the operations of the rural microfinance institutions. There is shortage of supply of institutional credit and this is to blame for the slow pace of growth. For instance, in the poor regions, there is a growing number of households who are trapped in debt cycles and are forced to provide labour to the lenders to cover the repayment. From the official statistics, it is evident that the actual supply of institutional credit did decline in the mid 1990s.
This shows that the microfinance institutions are managed by these two major bodies that are concerned with formulating and implementing policies. More so, it is evident that the microfinance institutions are regulated by the highest organs of the structures. However, the studies found out that there are various challenges such as influence from the political class, lack of proper regulatory systems, invasion by state owned entities and informal institutions. There is a need to improve the structures by developing the most effective structures that show the operational structures and how these informal organizations are included in the rural areas.
4.2.2 To assess the development of China’s microfinance company process and the future prospects
In order to address the development of the Chinese microfinance company process and the future prospects, the researcher obtained data from the original studies by Wang (2013), the Organization for Economic Cooperation and Development (OECD) (2005), Zhang (2006) and MIFA (2008).
According to Wang (2013), the development of microfinance companies is dependent on the revenue and profits gained by the companies. The original studies show that the development of these institutions is based on factors of production, innovation and the attitudes of the market. Particularly, Wang (2013) found out that the development of the financial institutions in the provinces is affected negatively by the low productivity and lack of innovation techniques by the companies. Comparing these findings to the literature presented by Zhu (2013), the researcher can conclude that with these factors identified and used appropriately, the microfinance institutions could develop outreach programs that are aimed at addressing the needs of the market. The advantage is that this could be used to improve the relationship that exists between the market in the rural areas and the microfinance institutions in China. In addition to this, the original studies show that with increased availability of financial income in the companies, there is likelihood that the companies could spend much on technology, machinery and the increase in capital, which are significant when addressing the development prospects. This presents a clear implication that there is a need to design policies that enhance improvement in technology. These will allow the institutions to gain much in terms of the market and profitability. These factors are significant when improving on technological upgrades, growth of new divisions, new strategies and the general development of these companies. However, the original studies by Wang (2013) only look at the technological prospects. These findings are, however, inadequate when addressing the development and future prospects of microfinance in China. While agreeing with these views by Wang (2013), the literature by WMFG (2010) posits that these prospects are important in addressing the actions and plans put in place to ensure the operations of microfinance institutions are up to the plinth. A clear implication of this is that the future of the microfinance institutions is dependent on the types of action plans that are formulated by the management bodies. These will address the areas of marketing, regulation of entities, demand and supply of services.
On the other hand, the report by the OECD (2005) provides various development systems in microfinance, the problems faced and the suggestions. The OECD (2005) reports the findings that were particularly aimed at identifying the problems and suggest the policies and appraisals to developing a well functioning and sustainable agricultural and rural finance system. More so, the report aimed at addressing the needs of the rural agricultural sectors. The findings made from the study show that with the development of many companies in the recent years, the rural financial sector in China lags behind and that they are weak in terms of structures, which is a cause of slow development (OECD, 2005). The findings made from these original studies are faced with financial fragility, unfavourable market environments and policies by the government and other management challenges. For instance, the development of microfinance has been slow due to low numbers of customers that are pushed away by the high transaction costs.
More so, in agreement, the government does not allow funding of these institutions to a certain extent. In agreement, in the literature presented, one notable setback is that the Chinese regulations do not allow such funding programs (Rahman et al., 2012). To surmise this, as presented in the literature review, Mao’s interview response confirms that with such regulations, the institutions are having a negative impact on their development (Bai, 2011). This would address the gaps identified as to why over 70% of the rural customers are still not involved with microfinance. In particular, the reports point out that there are restricting policies and that the potential customers are facing challenges of not being able to use collateral such as land. The original studies suggest that the microfinance institutions and the rural credit companies should be self sustainable to withstand competition, while the government should create a favourable environment to facilitate savings and investments. Increasingly, the original findings of the OECD (2013) also show that the regulatory systems should transfer responsibilities from towns to township centres in the rural areas. The study also presents valuable information on the future of the companies by suggesting the pilots to address the inclusion of intermediaries to increase the market. Comparing these views to the literature presented by Zhu (2013) and Bai (2011), it is clear that operating in such systems allows the transfer of such regulatory systems and authority, and eventually enables the microfinance institutions to start up, scale higher and get to new and larger markets. This presents a solution to the need for better prospects that will help improve microfinance in China. The implication that is evident from this is that with changes from the current regulatory systems and policies, microfinance institutions would be able to address the gaps identified in the procedures involved in credit, savings, insurance and other services offered by the companies.
Generally, it is evident from the different views that microfinance in China could improve in delivery when the regulatory bodies address the need for improved operation, funding, marketing and technological advancement. This will help improve the provision of the microfinance services in future.
4.2.3 To evaluate the extent to which the relationship between China’s microfinance companies and the market
The researcher sought to address the extent to which the relationship between the companies and the market exist by looking at the employment systems and the work done by the microfinance institutions when addressing the demands of the market. The secondary material was collected from various studies by authors such as Wang (2013), the MIFA (2008) and the OECD (2005).
MIFA (2008) presents that by engaging in pilot programs, the microfinance institutions have been able to have over 1901 offices in 31 provinces in China. However, while the original studies show that there is growth in the services, the findings made do not clearly present what microfinance companies are doing to enhance the relationship with the market. In fact, the original study by MIFA (2008) found out that there is still a lack of clear documentation and data that shows exactly what is happening in terms of the relationship that exists between microfinance and the market. The available data show that the customers from the rural areas are the majority of this microfinance industry and that many have not had a chance to get the advantages that come with the setting up of these institutions. However, while the studies show no clear data on the population, the literature presented concerning the employment shows that one challenge that faces the microfinance institutions in China is the provision of jobs to individuals based on the connection to the Chinese Communist Party. Despite this setback, the research presents that one advantage of the original findings is that there is a level of relationship that has seen the development of these institutions in the rural markets. Perhaps the most appropriate solution to this is the use of social programs to improve the existing relationship by Zhu (2013) and Rahman et al., (2012). For instance, they show the use of educational programs and other outreach programs when enhancing the relationship between the market and the microfinance institutions.
On the other hand, there is a decline in the supply of credit in the institutions and this could be caused largely by determining the financial performance of the microfinance institutions. It is evident that most rural microfinance institutions are facing most loses and have non performing loans that are covered by the development factors beyond the control factors. One such challenge is favoritism of state owned entities in the microfinance institutions. For instance, the Agricultural Bank of China is one state owned company that is has shifted its historical burdens to the asset management companies. It is much unclear who is responsible for these growing historical burdens. The negative effects of this could be based on the distortions in the market rates that could be negative. For instance, there have been constant changes in the institutional rates between 1991 and 2012 (Table, 4). This makes the controlling institutions to present narrow and skewed structures.
Table 4 The Changing Interest Rates in the Microfinance Institutions in China between 1991 and 2011
Changes in Interest Rates (%) between 1991 and 2011
Deposit/Time Apr-91 Jul-95 Jul-97 Jul-02 Jul-12
6 months -1.1 -1.2 0.9 2.1 3.3
12 months -2.4 -8.2 3.3 3.2 3.5
3 years -2 -6.4 4.8 3.3 4.1
5 years -0.8 -6.4 5.4 3.9 5
Loans/ Time Apr-91 Jul-95 Jul-97 Jul-02 Jul-12
6 months 5.1 -3.7 8.8 6.4 6.1
12 months 5.6 -2 9.1 6.7 6.5
3 years 0 -9 2.1 6.2 6.7
5 years 2.9 13.2 14.8 0.8 -0.3
Source: Report from PBC (2014) and Annual Report by CRDC (2007)
The studies also suggest diversification of the institutions such as expanding the quantity of loans offered and support savings and loans at a large scale. This will allow the customers to have a positive relationship with the institutions as they will be able to access the services offered by microfinance institutions. This posits for a strong profit orientation by developing different approaches such as using social systems where the microfinance institutions can use multiple layers to engage the market. Differently, the literature by Rahman et al., (2012) and Zhu (2013) suggests the provision of special lending and other services such as incentives to the clients such as the farmers, fishermen and the staff could ensure a satisfied clientele and ensure the progress of these operations. However, it is evident from the original studies by Zhang (2005) that there are still bad loans from many rural customers. This has created a certain level of poor relationship to exist between the microfinance institutions and the market. However, as presented in the studies by the OECD (2005) and MIFA (2008), much of these issues are caused by poor policies by the government that helps only a few individuals to access the loans through informal means. This causes the poor relations that exist. On the contrary, the institutions could use the relationship strategies such as engaging in corporate social responsibility practices. A solution to this could, however, be through the use be the outreach programs and social services that help in creating a relationship. This could be through employing locals, engaging in education of the rural customers and ensuring the services are reachable in the target market.
4.3 Conclusion
In conclusion, the findings presented were collected from secondary research material presented by various authors such as Zhang (2005), the OECD (2005) and the MIFA (2008). The findings made show that while the microfinance institutions in China have developed in the recent years, they are faced with various challenges that are majorly based on the regulatory systems put in place. However, these challenges could be addressed if the regulatory policies are reconstructed to not only fit the development of the institutions, but also improve the relationship strategies between the institutions and the market. Based on the findings, it is evident that there has been growth of the microfinance institutions in China since their inception to date. The data collected from various secondary sources suggest that regulatory systems need to address the different areas of the operations of these companies, such as addressing the negative variables pointed out from the studies.
Chapter 5 Conclusion (1017 Words)
5.1. Introduction
his section provides the results obtained from the research conducted. Specifically, this chapter presents what was achieved regarding the research purpose. In order to address the achievement, the chapter provides a conclusion based on the research questions designed for the study. In this case, this chapter addresses the answers obtained based on the research questions designed for this study. In particular, the study sought to address the extent of development of microfinance in China, the various plans and prospects besides understanding the existing relationship between the market and these microfinance companies.
Additionally, this chapter presents the implications of the data collected from the study and the recommendations for further study and analysis.
5.2. Conclusions
For this study, the main purpose was to assess the development of the Chinese microfinance company process and the future prospects, besides analyzing the relationship between the microfinance institutions and the market. The researcher analyzed the microfinance institutions in China by assessing microfinance in general. More so, the research analyzed the history of the development of microfinance in China and the current activities involved in microfinance. This involved the presentation of the challenges faced by these institutions and the prospects in the microfinance institutions in China. To access the aim of the study, the researcher used the realism and interpretivism philosophy while looking at the findings using the inductive approach. Therefore, with this in mind, the conclusions are presented below:
To begin with, concerning the research question ‘To what extent has microfinance developed in China?’ the study found out that microfinance has significantly developed in China in the last 3 decades. The study found out that the development has seen the microfinance institutions grow in numbers in various provinces in China. However, despite the growth, there are no specific data on the exact number of people involved in microfinance in China. Despite this, the growth has seen the development of microfinance by improving the services offered to the poor such as insurance services, savings, credit services and other financial services (Zhang, 2005). The study also found out that despite the development, many of the operating regulations are still not addressing the needs of the less fortunate as they seem to allow irregular service providers by the institutions. Specifically, the kind of services is lagging behind, especially from the procedures that favour the individuals affiliated with the communist party and poor management strategies.
On the other hand, looking at the research question ‘How has the Chinese microfinance company process developed and what are the various plans and prospects addressed in these companies?’ it is evident that the development process is faced with various setbacks. For instance, the regulatory bodies need to change the existing regulations in an effort to address the needs of the target market and help achieve the overall objective. A good example is the use of land rights to obtain credit services and the use of technology to improve on the innovation of new strategies to achieve the main objectives (Zhang, 2005; MIFA, 2008; Wang, 2013). The study found out that with changes in the regulatory policies and process, the microfinance institutions could grow further into the rural markets.
Finally, concerning the research question ‘What is the relationship between China’s microfinance companies and the market?’ it is evident that the relationship that exists is still not sufficient as the findings show that not all people access the financial options offered by these institutions. For instance, the study found out that many of these clients do not access the credit services, and the transaction costs are extremely high. These challenges have particularly resulted in few customers in the microfinance institutions. However, in order to improve the relationship, the study suggested the use of social responsibility procedures that engage the customers. This includes the employment of the locals in these institutions, education programs, and other services that attract customers to these institutions (Rahman et al., 2012). More so, there is a need to create better policies that will help address the different changes in the loans and interest rates that are provided by these organizations.
5.3. Implication of the study
From the findings made and the conclusions made from this study, the proposed development and formulation of new and market-friendly regulations could readily be used in practice. For instance, the formulation of policies that allow clients to use land rights to access the microloans would be applicable when seeking to increase the market. More so, with improved technology, there is greater potential for growth in other applicable areas of microfinance such as marketing, innovation of new services and improved service delivery in the Chinese rural areas. The findings further suggest engaging in social responsibility programs such as educating the market on microfinance. These findings are of relevance in achieving a positive relationship between the market and the microfinance companies in China.
5.4. Recommendation
Despite the possible application of the findings made, further study on the issue of development of microfinance in China would be of great interest. Clearly, more studies on this issue will be needed to validate the exact number of people and services offered by the existing microfinance companies in China. More so, more research on how and strategies to engage in other services as required by the market would be necessary to obtain a definitive solution on how to engage the market into entering into and registering with the microfinance companies.