HSBC gets approval for rural bank in China

By Daisy Ku

LONDON, Aug 9 (Reuters) - HSBC Holding Plc (HSBA.L) (0005.HK) became the first global lender to launch a village bank in China after winning regulatory approval in a move to tap the country's growing rural economy.

The Chinese government is trying to stimulate investment in the countryside to reduce a rising income gap with the cities, but most rural residents and businesses have great difficulty accessing credit.

To encourage microfinancing, the China Banking Regulatory Commission (CBRC) on Monday launched new guidelines allowing all banking institutions to operate in rural areas.

"We appreciate the opportunity to further extend HSBC's presence in China and capitalise on the new opportunities in the country's under-banked rural market," said Stephen Green, group chairman of HSBC.

HSBC has rural banking operations in Brazil, India, Indonesia, the Philippines and Mexico.

RURAL REFORM

Since end of last year, CBRC has been beefing up financial service reform in rural areas, granting bigger access for lenders in less developed areas such as Qinghai, Gansu, Jilin and Inner Mongolia.

The new policy published on Monday further eases market accessibility, encouraging loans to the agricultural production sector and allows loans in more developed rural areas of upto 300,000 yuan (US$39,683) and 50,000 yuan in less developed areas.

China Postal Saving Bank, which has about 25,000 outlets in China's rural areas, has applied to launch microcredit earlier. Sichuan Yilong Huimin Village Bank, China's first village bank, launched its rural bankning service this February in Nanchong, a second-tier city in the southwestern province of Sichuan.

HSBC Rural Bank Co., a wholly owned entity with a full banking licence, will be located in central China's Hubei province, Europe's biggest bank said in a statement.

The unit is expected to be set up by the end of the year in Cengdu County of Suizhou City with an initial staff of 25.

Microfinancing is increasingly seen as a means of alleviating poverty, providing developing economies with credit and incentives to start or expand small business.

The sector, once limited to the domian of non-government organisations is drawing the attention of the largest global players.

Citigrouop (C.N), which launched Global Microfinance in 2004, has grown its $5,000 investment in 1965 to an operation in over 50 countries, providing grants to some 180 microfinance partners.