A Sino-India Comparative Study On Development Of Rural Microfinance

As a creative combination of modern finance and traditional poverty reduction, microfinance is helpful to create and improve rural financial system, to develop rural financial mechanism, enhance rural financial efficiency, to properly mobilize and allocate financial resources. In this way, a stable and long-term development of rural economy and rural finance can be attained. The nature of microfinance is a kind of innovation of financial system. The improvement of microfinance means will both provide practical experience to China's finance theory and make contributions to the world poverty reduction.China and India are two largest developing countries. These two countries have a lot of similarities, not only in the aspects of land, population, resources, education, economic development, industrial structures but also in agriculture and rural areas. Because of the differences in history, geographical location, economic and population structures, the development of rural microfinance in India is quite earlier than that of in China as well as some of the other developing countries. A Sino-India comparative study on rural microfinance in the respects of historical development, demand and supply modes, microfinance regulation and supervision, differences and similarities have been pointed out and some important implications have been provided.Firstly, by applying the theory of institutional economics and ways of comparative analysis, the paper begins with the explanation of microfinance theory, including the definition, characteristics, development mode of microfinance. The Rural Financial theory, Transaction Cost Theory, Asymmetric Information theory and the Amartya Sen's theory are used to analyze the microfinance theory. Secondly, through comparative analysis on historical development, demand and supply modes, risk and regulation mechanisms of rural microfinance of China and India, the paper provides some useful experience. For example, the rural financial system in India is more developed as the central bank of India makes requirement on banks which have to provide a part of loan on agriculture or other preferential areas. As a result, more demands of microfinance in India have been met. Moreover, the SHG-Bank Linkage Program (SBLP) has reduced the risk arising from information asymmetry and improved the sustainability of microfinance institutions, etc. Finally, based on the comparative analysis, the paper puts forward some of the suggestions, including the institutionalist microfinance model should be the trend of development in both countries. The cooperation between formal and informal financial institutions through kinds of linkage is also important for the development of microfinance market. It is essential to insist on the market operation and mechanism of microfinance development to make it achieve poverty reduction goal. Other suggestions such as providing more policy flexibility to private microfinance institutions and creating a more relaxed regulatory environment and so on are also provided.