Micro and Small Enterprises (MSEs) will play a key role in the future Economic and Social Development of China. CDB sees the development of private MSEs as a key tool to generate and secure employment, fuel economic growth and stabilize society across China. However, MSE growth and development is constrained by the lack of finance through formal financial institutions, perpetuating inefficiencies and informality.

CDB plans to change this and play a catalytic role for the financial sector by providing technical assistance, loan funds and eventually equity to banks that want to engage in commercially viable MSE finance. CDB will thereby foster private sector and economic development on two levels:

• Improving the financial system by building the capacity in banks for sound large scale lending operations with MSEs; and
• Accelerating the growth and development of MSEs and the communities in which they live and work by providing finance to ultimately millions of entrepreneurs across China.

CDB's innovative MSE business has only now become possible due to far-reaching guidelines for lending to SMEs (CBRC), which have formed the basis for CDB and its partner banks to establish commercial large-scale MSE lending operations.

In developing this business, CDB has analyzed international experience and lessons learned and is now implementing a best-practice model with the help of international experts from IPC Germany and GDS USA.

In addition, CDB's MSE business is supported by the World Bank and the German KfW, which are planning to provide loan and technical assistance funds to CDB.

CDB's program has started in two pilot regions, Baotou and Taizhou.  Micro-lending technology is now being introduced and specialized loan officers are being trained in city commercial banks in these regions.  Management capacity is also being built-up that will help the program to expand throughout the branch networks of the selected partner banks.  Once systems and loan products have been tested in the pilot banks, the program will expand to new provinces.  The goal is to be in all provinces by 2008 with partner banks that are able to reach thousands of businesses in each city every month.  Eligible businesses will be micro and small enterprises requiring from RMB 100 to RMB 500,000.  Finance will be available for working capital and/or fixed assets to businesses in all sectors: trade, production, services and agriculture.  Each business will be analyzed on an individual basis, and the credit decision will be taken on the merit of the individual business and not how much collateral can be provided.  Minimal documentation will also be requested of clients as the emphasis is on sound credit analysis.