Harbin Bank VTB Network

completed

China’s policy objectives in the context of the global financial crisis are focused on its transformation from an export-driven economy to one led by domestic consumption, while achieving environmental and social sustainability. In order to increase domestic demand, China needs to significantly reduce the gap between living standards in urban and frontier/rural areas. Microfinance is one of the tools to narrow that gap and to provide, amongst other benefits, employment opportunities to factory works who may have lost their jobs in export-oriented companies located in the coastal area and who are migrating back to China’s rural areas.The proposed project consists of equity investments of up to US$10 million in a network of 5 - 10 greenfield Village and Township Banks (“VTB”) in China which are sponsored by Harbin Bank (the”Bank”). The Bank as the leading sponsor will contribute most capital and resources to the network of VTBs. It will take an equity stake of more than 51% in each VTB and nominate the key management team. IFC will take a 10 - 20% equity stake in these VTBs and will provide technical assistance. A VTB is effectively a deposit-taking microfinance bank, a model initiated by CBRC (the Chinese banking regulator) in 2006. As the VTB concept is still in the pilot stage, CBRC gives a limited number of licenses to sponsoring banks which are required to take the lead in setting up VTBs in a designated county or township, and the operational scope of a VTB is clearly limited to one county or township. The sponsoring banks could be local banks or qualified foreign banking institutions with an eligibility test as to consolidated balance sheet size reaching US$1.0 billion. The sponsoring bank must take no less than 20% equity in a VTB and any non-banking shareholder may hold equity of up to 10%.