The government in China made inclusive finance a goal, and began several initiatives to support the development of the sector, including lowering the reserve requirement ratio for banks offering new loans in inclusive finance programs. They also began offering subsidies, tax incentives, and a variety of other incentives and regulatory support for the new efforts at inclusion.
The focus was on both poverty reduction and support for the agriculture industry. Since 2015, however, the number of microloan companies and their total registered capital are dropping, particularly in the agriculture sector. Discussion about the role of government and regulatory support for these initiatives have suggested several talking points in looking at this large initiative.
Should market forces determine the need for inclusive finance products? If so, and the government wants to support the initiatives, it must allow regulatory support to become agile enough it can respond rapidly to those market forces.
The government looks at the sector as being break-even or minimally profitable, and the various subsidies and tax incentives suggest support for the industry in moving into an area with non-standard collateral, seasonal or yearly cycles, and other unique features of the agricultural sector. There is not a great deal of clarity and cross-country understanding of the various definitions used in commercial fields.
In other countries, NGOs and the United Nations are offering expert assistance to countries developing or supporting the development of programs, including regulatory support. It is clear that conflict, accelerating inflation, political instability, and disruptions in essential infrastructure, such as telecom, energy, and transportation affect the ability of participants in inclusive finance to succeed.
If market forces are essential to develop inclusive finance, how will those market forces play out in the agriculture sector? This sector depends on both transportation and energy infrastructure, as well as critical systems for storage of food. But agriculture can also be viewed as a national security issue, and disruptions in this field can lead to political and social instability.
There are emerging global norms for this sector, called by various names, but usually GAP- good agricultural practices. GAP usually involves standards for safety, environmental impact, labor practices, and carbon footprint. But primary goals for the agriculture sector continue to include at the most basic the security of the food supply with a burgeoning population, and food safety.
The agriculture sector, with its significant dependence on other national infrastructure, with its national security implications, with its lack of traditional collateral and slow, seasonal production systems, probably needs regulatory support that is greater and more industry specific than other small income producing enterprises.
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