ABSTRACT
China’s experiments with micro-finance have been a response to the disappointing performance of rural financial institutions in general, and poverty alleviation loans in particular (Cheng 1998b).
In recent years central and local governments have used both budgetary and financial channels to assist the rural poor and prevent the income gap from widening any further. The provision of subsidised loans in the state-designated poor counties through the agricultural bank system and the poverty alleviation offices has been important component of this strategy.11 However, two major problems have occurred with subsidised credit in China. First, a high proportion of credit has been channelled to the TVEs, or to enterprises run by county governments, rather than to poor households. Second, these loans have had very high delinquency rates (He and Wei 1998). In general, these enterprises have failed to provide sustainable employment for the poor, and many became bankrupt one or two years after they received a loan from the Agricultural Bank of China/Agricultural Development Bank of China.
