No money, no business. That's what Tug Mule, a young man in Erdos, Inner Mongolia autonomous region, experienced two years ago.

At that time, Tug planned to open an electric bicycle shop, which required an initial investment of about 100,000 yuan, but his personal savings could only meet half of that. After raising money from all of his friends and relatives, he found he was still about 20,000 yuan short.

Tug was a migrant worker without a local hukou (a residence permit issued by the local government), so he didn't even think about asking banks for help, since the loan was also relatively small.

"The chances of getting the loan approved were small, and even if it was approved, I would have missed the best opportunities to do business since the application process is complicated and usually takes a long time," he said.

His business dream was finally realized with the help of Rongfeng Micro-credit Company, the first micro-credit firm in Inner Mongolia autonomous region, which lent him 18,000 yuan.

Since then, Tug has got loans from the micro-credit company five times and his business has now expanded to two shops.

Founded in October 2006, Rongfeng Micro-credit Company was also one of the country's first batch of seven pilot micro-credit companies. The pilot scheme was launched in 2005 in Inner Mongolia, Guizhou, Sichuan, Shaanxi and Shanxi.

In 2008 alone, Rongfeng Micro-credit Company lent over 200 million yuan, which benefited around 600 clients.

"About 80 percent of our clients are small firms and farmers that find it difficult to get loans from banks, since they are seeking sums less than 500,000 yuan," said Bie Xiujuan, deputy general manager of Rongfeng Micro-credit Company.

The company's average interest rate for loans is around 26.23 percent, about 3.5 to 4 times the benchmark interest rate, while the rate from local loan sharks can be as much as 10 times the benchmark, which is hard for many creditors to afford.

"My restaurant is usually short of more than 100,000 yuan in capital during the peak season, but I can't get micro loans from banks or afford the high interest rates of loan sharks," said a local restaurateur in Erdos, Inner Mongolia, adding that he no longer worried about his cash flow in the peak season since becoming the client of a micro-credit company last year.

In Erdos, a city famous for cashmere and coal, there is a population of about 2 million, including 440,000 migrants. Many of the city's self-employed entrepreneurs like Liu will benefit from micro loans in the near future.

"More than 100 micro-credit companies applied to set up in Erdos last year, and 42 were approved. Two companies had already opened by the year's end," said Shen Xiuwen, deputy chief of the finance office of Inner Mongolia autonomous region.

The micro-credit business is also booming in other areas of Inner Mongolia. By the end of 2008, 156 micro-credit companies got the green light to set up in Inner Mongolia, with an estimated registered capital of 11 billion yuan.

"The micro-credit business currently covers about 60 percent of counties in the region. We want to extend its coverage to every county this year," said Shen.

Local governments have also drawn up policies to encourage qualified micro-credit companies to expand their business in the region. According to regulations, micro-credit companies operating at a profit for one year with a non-performing loan ratio of below 5 percent are allowed to open branches in other counties.

He Guangwen, a professor with China Agricultural University, said: "It's natural for financial institutions to expand their business area when they develop to a certain level, which can boost their efficiency and cut costs."

Micro-credit in Inner Mongolia has also received a great deal of attention from international organizations. The US-based non-profit organization ACCION International and the World Bank's International Finance Corporation (IFC) recently set up a micro-credit joint venture in this region.

Meanwhile, the Asian Development Bank is in negotiations with a local lender, Hohhot City Commercial Bank. The two plan to provide $100 million respectively to operate a micro-credit wholesale business. Bangladesh's Grameen Bank and Xac Bank from the Republic of Mongolia also conducted investigations in Inner Mongolia to select locations for micro-credit projects.

Micro-credit has also proved profitable in Shanxi province, where the country's first micro-credit firms opened for business over three years ago.

Located in Pingyao county, Jinyuantai Micro-credit Company and Rishenglong Micro-credit Company were the country's first pilot units, both of which were founded on Dec 27, 2005.

"The profit margin (of the micro-credit company) is even more stable than the coal business that I used to be involved in," said Han Shigong, chairman of Jinyuantai Micro-credit Company.

With registered capital of 1.6 million yuan, the company has realized about 5 million yuan in profits since it was founded. The company's profit margin is over 15 percent and around 99.5 percent of loans are repaid on time.

"The risks of serving agriculture-related business are not as high as I imagined," said Han.

(China Daily 03/02/2009 page5)