Hong Kong To Launch Microfinance Pilot Scheme

by Mary Swire, Tax-News.com, Hong Kong

03 February 2012

The Hong Kong Mortgage Corporation Limited (HKMC) has announced that it will shortly seek approval to launch a microfinance pilot scheme with a trial period of three years, from mid-2012.

At the request of the Financial Secretary, John C Tsang, the HKMC formed a study group in 2011, with members drawn from different sectors (including the banking industry, voluntary agencies, academia and the Government) and chaired by the Executive Director of the HKMC and the Deputy Chief Executive of the Hong Kong Monetary Authority, Peter Pang.

The study group examined the feasibility of establishing a sustainable microfinance scheme in Hong Kong and submitted its study report to the Financial Secretary in August 2011.

It was said that overseas experience indicated that a successful and sustainable microfinance scheme would provide comprehensive support to help boost the credit standing of borrowers, so that they could obtain bank loans at a relatively lower interest rate. Such a system would also assist borrowers, for example, to develop their business plans and provide entrepreneurial training.

The study group recommended that a proposed microfinance scheme in Hong Kong should be self-sustaining in the long-run; should not operate as a social welfare hand-out; borrowers must have the willingness to repay the loans; for micro-business start-up and self-employment, borrowers will need to present viable business plans; and borrowers should have the ability to implement their business plans.

According to the preliminary framework suggested by the study report, the pilot scheme should cater to three categories of borrowers - those aspiring to start up their own businesses, those wishing to become self-employed, and those wanting to achieve self-enhancement through training, the upgrading of skills or securing professional certification.

The maximum loan amount for each loan in these categories will be HKD300,000 (USD38,700), HKD200,000 and HKD100,000 respectively. The maximum loan tenor will be five years. For loan tenors of up to three years, a repayment holiday of six months will be provided; and, for loan tenors of over three years and up to five years, a repayment holiday of 12 months will be applicable.

All borrowers would need to be Hong Kong residents, aged 18 or over, with no bankruptcy record and an acceptable credit history.

After considering the report, the Financial Secretary announced in the 2012-13 Budget a request for the HKMC to co-ordinate with banks, voluntary agencies and other stakeholders to carry out a sustainable microfinance pilot scheme based on commercial principles, with a tentative aggregate loan amount of HKD100m. Relevant ancillary and support services should also be provided to enhance the viability of the scheme.

The HKMC confirmed that it welcomed the announcement by the Financial Secretary, and that it is actively conducting the preparatory work, including discussions with banks and relevant bodies to work out the details of the scheme such as the interest rate level, application and approval procedures, and ancillary services.

Pang added that, “there are many in Hong Kong who aspire to set up their own businesses or enhance their skills. While the start-up funding needed may not necessarily be substantial, many often find it difficult to borrow from the traditional financing channels to realise their development potential. The HKMC will work closely with stakeholders such as banks and voluntary agencies to develop a centralised microfinance platform to help these people obtain microfinance.”

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