Powering private sector job creation

Zhang and her husband were once unemployed workers who struggled to make a living when they decided to set up a small car repair shop in the city of Deyang. In 2009, the couple eventually received a loan of 150,000 yuan ($23,890) from the Bank of Deyang, an IFC client. With that and subsequent loans from the bank, they quickly expanded their business and now own two shops and a sales company, securing jobs not only for themselves, but for as many as 150 people.

The private sector provides nine out of every 10 jobs globally. Empowering entrepreneurs such as Zhang and others like her is one of the most efficient ways to address job creation and poverty reduction.

Another way the IFC helped improve access to finance was by advising the Chinese government to pass a regulation in 2007 enabling banks to accept so-called movable assets, such as inventory, machinery or future income, as collateral, thereby making it easier for them to lend to small and medium-sized enterprises. The IFC helped China's central bank set up a centralized online system for banks to register movable assets from borrowers, who can now obtain loans from banks more easily.

The effect has been phenomenal: The value of commercial loans secured with movable assets has grown 24 percent in the past four years. So far, more than $3 trillion in loans have been granted through movable-asset financing and most of the beneficiaries are small businesses.

Apart from limited access to finance for micro, small and medium-sized enterprises, the IFC has identified three other obstacles that impede job growth in the private sector, namely a weak investment climate, inadequate infrastructure, and insufficient training and skills.

An IFC study, which drew on the experience of more than 45,000 businesses in over 100 countries, found that women and youth are two groups that face specific employment challenges. Young people are almost three times more likely to be unemployed, while women are often forced to take poorly paid and insecure jobs.

To tackle these problems, governments, financial institutions and businesses need to work together to improve investment climates, infrastructure and access to finance and address the skills gaps among workers. Only by working together can we tackle the global crisis of joblessness.

The author is the country manager for China and Mongolia, IFC.

(China Daily 01/29/2013 page8)