Just a few months after it announced an approval to launch a pilot microfinance scheme in February, the Hong Kong Mortgage Corporation Limited’s (HKMC) new scheme was unveiled last Friday, which will extend microfinance loans to borrowers in collaboration with six banks and five non-governmental organizations.
Loans will be offered in three categories: Micro Business Start-Up Loans, Self-Employment Loans and Self-Enhancement Loans. The scheme targets people who wish to start their own business, self-employed people, and those wanting to receive training, upgrade skills, or pursue professional certifications, but have difficulty obtaining loans from traditional financial institutions.
“While the start-up funding needed may not necessarily be substantial, many often find it difficult to borrow from the traditional financing channels to realize their development potential,” said Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA).
The maximum amount for each loan in these categories is HK $300,000 (US $38,700), HK $200,000 (US $25,800), and HK $100,000 (US $12,900) respectively. The maximum loan term is 5 years, with an interest rate of no more than 9% p.a. for general borrowers and 8% p.a. for borrowers who can provide a third-party guarantee.
Applicants must be 18 or older, have an acceptable credit history, and not be subject to any bankruptcy order or proceedings at the time of application.
John C. Tsang, Chairman of the HKMC and Hong Kong’s Financial Secretary, announced at the launch ceremony that the scheme will run for a pilot of three years, with a total loan amount tentatively capped at HK $100 million (US $12.9 million). After the scheme has been in operation for some time, the HKMC will review its effectiveness and scale.
“The proactive participation of banks and NGOs has proved that the government, business sector and community are sharing a common goal to strengthen the social capital of Hong Kong,” said Tsang.
Plans for a pilot microfinance scheme came following a study in 2011 by the HKMC and the HKMA, which revealed that microfinance schemes exist in Hong Kong, but they had little impact. Less than 200 loans were extended during the few years of operation, mainly due to limitations on funding and the need to be selective in choosing borrowers.
To counter ineffectiveness, the study suggests that the new scheme should be self-sustaining in the long run, require borrowers to present credible business plans, and not operate as “social welfare hand-out”.
Three of the six banks have begun to accept applications, while the other three are expected to take applications later this year.