New microfinance scheme launched in Hong Kong

On June 29, the Hong Kong Monetary Authority (HKMA) introduced a new microfinance scheme. It will be run by the Hong Kong Mortgage Corporation (HKMC) in collaboration with various non-government organisations and six banks and is aimed at extending both loans and ancillary support facilities to borrowers in Hong Kong. The pilot period is three years and the maximum total loan amount will initially be capped at HK$100 million.

Borrowers will be able to choose from loans in three categories: for business start-ups, for self-employed people and for people looking for finance training or other professional certification schemes. Interest rates of the loans are capped at 9% a year for the general borrower and at 8% a year for those that provide a third-party guarantee.

The scheme was introduced based on findings by a joint HKMA and HKMC study group. They showed that while initial funding requirements for start-ups in Hong Kong is not necessarily substantial, start-ups often struggle in borrowing enough from traditional financing channels to realise their full development potential. The study also found that three microfinance schemes already exist in Hong Kong. However, their impact is considered limited, mainly due to limitations on funding and the consequential need to be very selective in picking borrowers.

Based on these findings the study suggested to introduce a self-sustaining new scheme, that requires borrowers to come up with credible business plans in order to avoid operating as a ‘social welfare hand-out’.

Three of the currently six banks involved in the scheme are already accepting applications, while the remaining three will begin taking applications later this year once the necessary systems and operational arrangements are in place.

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