Case Study: SME Development Finance in China

GBRW implemented a project to assist a large state owned bank in China, which had received large long-term loans from international agencies, to evaluate and then assist Participating Banks (PBs) to on-lend those longer term loans to their micro and SME clients. The main issue was not finding and evaluating potential PBs, which were numerous, but getting those PBs once they had been approved to draw down the loans and on-lend them. Partly it was a question of price - although the funding cost from the international agencies was below market rates the state owned bank applied a mark-up when it on-lent to the PBs. Partly it was that the PBs did not see the need for medium term funds, when short-term funding from their own resources was cheaper for them. Partly they didn’t want to collect reports from the branches and pass on information on their clients to the state owned bank which was a potential competitor. Thus overall draw down of the funding from the international agencies was low and there was a danger that they would withdraw the facilities. GBRW proposed a restructuring that made the facilities more attractive to the PBs and encouraged greater usage of the facilities.