Rural Financial Reform Needed to Ease Poverty in China: ADB

China needs to reform its rural financial system if it is to tackle poverty in the countryside and allow agriculture and local businesses to play a strong, long-term role in the domestic economy, says a new book from the Asian Development Bank (ADB).

Rural Finance in Poverty-Stricken Areas in the People's Republic of China, launched this week, suggests new laws are needed to support microcredit institutions, financial cooperatives, and informal finance, which are key to meeting financing needs in rural areas.

Although China has seen rapid reform in its financial sector in recent decades, reform in the rural financial sector has lagged, exacerbating the economic gap between rural and urban regions, the Manila-headquartered ADB said Friday in a statement, citing the viewpoints of the new book.

Rural customers are best served by institutions that clearly understand their needs and can closely monitor borrowing, the book said, adding that until now, demand for rural finance has largely been met by local branches of large urban banks at high cost and high risk.

However, practices that work well in China's cities often do not work as well in the vast countryside where individuals, small businesses and farms need different kinds of financial products and may have fewer or different assets, according to the book.

Microfinance institutions, as well as many informal financial outlets that serve rural customers, provide competition to local banks and, being more flexible, can often better meet local financing and investment needs, it added.