An “interest subsidy loan” is a kind of poverty alleviation loan set up by the government and funded by financial institutions aiming to improve the production and living conditions in poor areas, increase the income and the quality of life of the targeted residents, and promote local finances and social development.
In 1984, China allocated 1.3 billion RMB for interest subsidy loans. With the progress in terms of poverty alleviation, the amount grew each year from 18.5 billion RMB in 2001 to 43.6 billion RMB in 2010.
Throughout the year, the management system for such loans has undergone several significant adjustments. At the beginning of the 21st century, with the establishment of the socialist market economy in China and the gradual opening of the credit and financial markets, the macroeconomic environment for interest subsidy loans was transformed changes as well.
In 2008, based on years of working experiences, the State Council Leading Group Office of Poverty Alleviation and Development, with the consent of the State Council and in association with the Ministry of Finance, the People’s Bank of China and the China Banking Regulatory Commission, comprehensively reformed the former mechanism for interest subsidy loan. This contributed to the establishment and improvement of the management of credit funds so that the requirements of the market economy could be met, enhancing the operational efficiency of anti-poverty funds. The main points of the reform were:
1. Devolve authority over management. Direct administrative authority for poverty alleviation loans and interest funds was decentralized and passed to provinces as well as further down to counties.
2. Liberalize loans. All banks and financial institutions willing to be involved in poverty alleviation, are now allowed to issue interest subsidy loans.
3. Regulate loan use. Interest subsidy loans are given to key counties and villages of the national poverty alleviation program. Loans at the individual level focus on poor households and aim to develop productive forces.
4. Fix interest subsidy rates. Interest subsidy for loans at the individual level is set at 5% and 3% annually for program loans.
5. Reform loan management. This is an incentive for local governments and financial institutions to issue more poverty alleviation loans.
Between 2008 and 2010, the amount of poverty alleviation loans issued reached 91 billion RMB, which accounted for more than the total issued between 2001 and 2007.