Further Decade Development of Inclusive Finance in China

By Jinpu JIAO 


Director General   Financial Consumer Protection Bureau  People\'s Bank of China 


My topic today is "Further decade development of Inclusive Finance in China". I have been thinking about this topic for a long time. The subject of the conference is inclusive financial and internet technologies. Since the addition of finance to internet technologies, the property of currency has changed, such as digital currency and electronic currency. Consequently, the Central Bank is facing a big problem – whether to issue digital currency instead of cash, and whether to decentralize B2B activity. I had prepared a topic about theoretical framework and regulatory assumption of digital currency and inclusive finance. Since many friends of mine think it is too difficult to understand this topic, I have decided to talk about further decade development of inclusive finance in China and share some of my opinionswith you together. 



I. The meaning and the development of inclusive finance


Inclusive finance is an evolving concept. Initially we focused on the accessibility of SME credit. This is because banking has occupied a dominant position in the developing world and emerging market economies for a long time. There are some still argue that inclusive finance referred to loans capped at two thousand US dollars. My response is, inclusive finance is an evolving concept with rich contexts such as "big finance", "wide connotation", "multi-dimensional" so on and so forth. This covers various financial services including opening accounts, savings, credit, payment, securities, insurance and others. It is becoming a set of development strategies and operating philosophy of major issues involving the financial infrastructure, financial reform and development, as well as structural adjustment. I remember a few years ago when we discussed inclusive finance, we asked a leader in CSRC whether there is any relationship between inclusive finance and its organization. There is actually proved a critical connection exist between them. 



In addition, inclusive finance should not be measured merely by numbers. As is known, under the framework of the G20, there is a GPFI plenary meeting in 2016 and we are currently the co-chair of G20. I am thinking about what China should do in the field of inclusive finance in 2016 after global leader from National Treasure and Central Bank chiefs In September. Furthermore, a GPFI plenary meeting have completed in Turkey. It is a challenge for us to consider how we will put financial inclusion into formal development agenda next year. To recap the theme of our conference today which is "Good finance, Good society", we need to use the vision and methods of good finance to promote social and sustainable development. This is the first viewpoint.







II. China has made important progress on inclusive finance development in decades


The development of China\'s inclusive finance is synchronous with global trends. In 2005, the World Bank and the United Nations organized more than 150 experts to propose concepts about inclusive finance through the internet in Geneva, I was also a member and published a report. The World Bank published a book about building inclusive financial system over the next year. We were connected with the world microcredit movement through the Year of International Microcredit.


According to the international evaluation criteria and analytical framework, we analyze inclusive finance in China from multiple dimensions. For example, diversification of financial services, coverage of financial services, financial services satisfaction of vulnerable groups, financial consumer protection, and policy support for inclusive finance development. Overall, the development of inclusive finance in China is at the upper levels of the international arena.


In late October (in 2015), Her Majesty Queen Maxima of the Netherlands will come to Beijing. I would like to invite her majesty to discuss inclusive finance at Tsinghua University. She is the ambassador of inclusive finance and the honorary president of GPFI. She was the leading author of significant report including ‘The Inclusive Finance’ report published by the World Bank. On the People\'s Bank of China official website, I published an article on inclusive finance evaluation on the approximately 31 provinces and autonomous regions in the China. In recent years, China has continued to accelerate the process of inclusive financial development. Inclusive finance has reached a new stage since the concept of "Internet Plus of inclusive finance" was proposed. Also, mobile banking, digital currency and the emergence of new formats have pushed Chinese inclusive finance to a new level. The G20 summit will be hosted in China next year. If the powers of rule making and discourse are led by us, it is better to share China’s experience and lessons in promoting inclusive finance.



I also want to talk about the figures. In fact, some of the figures are good. The IMF conducted an annual census of187 economies about accessibility of financial service. They focus on bank branch coverage, ATM machine coverage, and the evaluation of the bank agent network. The evaluation results in 2013 shown that the density of bank branches and per capita availability were ranked in the middle level internationally, at No.89 and No.123 globally. The density of ATM machine and per capita availability were also in the upper level (No.37 and No.68). According to the World Bank\'s "2014 Global Inclusive Financial Survey Report", which was published in April 2015, the coverage rate of bank accounts in China has grown from 64% to 79%. The number of adults who own an account have increased by 180 million. Although the coverage rate on average has increased by15%, there are significant differences between social groups. 40% of the poorest adults experienced an account-popularizing rate of 26%, whereas 60% of the richest adults only experienced an increase of 8%. When the document were issued, I specifically asked the World Bank about how the Chinese figures came out. They entrusted a third-party company and conducted 20,000 random surveys in China. The scope of the surveys is mainly in Beijing, Shanghai and Guangzhou. Therefore, I suggested that they investigate in Ningxia and Guizhou, although it would be quite difficult for them. Hence, the figures may be skewed and limited to the areas that were surveyed.

However, it is evident that the coverage rate of accounts in China has reached 79%, with most adults owning an account. Recently, self-service machines, Internet banking (mobile banking), Internet insurance (telephone insurance) and other service channels have made positive progress. The usage of financial services like personal accounts, bank cards and online banking have enhanced quickly, especially in rural areas. By the end of 2014, rural financial institutions established2.731 billion personal bank settlement accounts. Furthermore, there are 3.06 settlement accounts per capita and 1.95 debit cards per capita. Essentially, every person has a card and every family has an account. There were 920,000 migrant bank card service points to help farmers draw their money in rural areas. This covers the country\'s main export provinces of migrant workers. Recently, the President of India visited China. He asked the Governor(of PBOC) Xiaochuan Zhou how the Chinese government deliver financial support to its individual citizens. The Governor Zhou came back and asked me to conduct rigorous research on the topic, and to write a paper to be share with our counterparts in India. I did a bit research afterwards and found out that there are at least 17 kinds of financial support. For example, rural household can get 50RMBand over 80 year olds can get 100RMB through institutions called rural households support hub. Now there are more than 700,000networksin rural areas for support. This would never occur in other countries. In total there were920,000 ATMs for agricultural aid set up in rural areas. I am going to see the cash withdrawal point when I go to villages for research. The cash withdraw places have become public spaces in rural areawhere villagers were gathering for all public affairs. 



We can also see that the establishment of rural credit systems and SME credit systems improves the rural economy and accessibility of financial services. By the end of 2014, a total of 2.5 million SMEs and 160 million farmers have established credit files in the financial system. More than 100 million farmers have had credit assessments. A total of 405,000 SMEs have obtained bank loans with a loan balance of8.9 trillion yuan, and 90.12 million farmers have obtained credit support with a loan balance of 2.2 trillion yuan. There were more than 100 credit information systems or service platforms established gaining a share of SME businesses’ and farmers’ credit information. Those systems provided support to the local government and credit management of financial institutions. Furthermore, those efforts accelerated the development of inclusive finance. To further elaborate our effort, we may conduct a comprehensive trial of inclusive finance in Ningbo, which will be administered by the People’s Bank of China, the World Bank, Ningbo Municipal Government and myself. Ningbo has been branded as a smart city by NDRC. Residents can even use their mobile phones to purchase food. There are also many islands. Thus, the ocean transportation and freight can be included in our database whose data generation will be helping shape a better financial system. Water bills, tax revenue, and gas consumption of SMEs is clearly recorded in the credit system.


By the end of 2014, the "San Nong" and SME’s loans achieved two "no less than" for six consecutive years, which mandates that the increase of SME loan should be no less than the growth of total loan portfolios of last year. This type of favorable policy towards SMEs was not identified in other places in the world. In addition, agriculture-related loans were 23.6 trillion yuan, which represents28.1% of total loan portfolios and 13% on a year-on-year growth basis, higher than the national growth rate of loans to financial institutions during the same period of 0.7%. Rural (county and below county) loan balance is 19.4 trillion yuan, which has increased by12.4%; the loan balance of farmers is 5.4 trillion  yuan, which has increased by 19%;loans for agriculture, forestry, animal husbandry and fishery have a balance of 3.3 trillion yuan, haverisen9.7%.


At the end of December 2014, credit to SMEs of financial institutions (RMB, non-currency) had a balance of 15.3 trillion yuan (loan balance to small enterprise was 13.76 trillion yuan and credit to microenterprise was 1.5 trillion yuan). It represents 30.4% of business credit and increased 15.5% on the previous year. The growth is 6.1 % higher than that of large enterprises and 4.9% higher than that of medium-sized enterprises. Also, compared to other loans and full business loans, it has grown by 1.9% and 3.9% respectively. In 2014, credit to microenterprises grew to2.13 trillion yuan (an increase of 128.5 billion yuan), which is an increase of 41.9% on business loans.


Regarding inclusive finance development, China has her own system characteristics due to a powerful government. Moreover, there are special policy features in China, because of the strong policy execution and strong desire from people yearning for a good life. This is our experience.


III. Promote the development of inclusive finance



In the third part, I would like to share other points of view on inclusive finance.


Promote financial reform by building the top-level of inclusive financial.


Although the 42nd step of The Leading Group For Deepening Reform is to develop inclusive finance, and the project is planned collaboratively by CBRC and the People’s Bank of China. In my opinion, the hierarchy is still too small. CBRC can only control banking. What about Security? Insurance? Credit industry? The third payment industry CBRC can’t control all of these industries. The inclusive finance department is a unit of banking and their scope is limited. Recently, some countries have established an "inclusive finance committee", or set up a special department in the central bank which is unified to develop a strategic plan for inclusive finance. The global plan aims to lift200 million people out of poverty by 2020.


Establish a statistical system to improve and perfect the inclusive finance index system.


There is a lot of data involved. However, the existing financial statistical system has not established special statistics for inclusive finance. The corresponding data is scattered in different departments and there is a shortage of data collaboration and mechanism sharing between departments. Hence, the availability of data is insufficient. In the future, apart from banking services, the data should cover more of other financial services such as insurance and securities. Recently I have been doing research in this area and found the data to be difficult to find. It is scattered and non-statistical. We designed a set of reports last year, and we tried to fill some of them in. Nevertheless, the quality of data is still not high. Thus, I think it is difficult to improve the development of inclusive finance without sufficient information.


Encourage financial innovation to promote multiple services of inclusive finance. 


Due to the diversification of customers and objectives on inclusive finance, it is essential to diversify services and products. I believe it is significantly important to enhance innovation and make overall arrangements for different types of financial service providers. Under the premise of risk control, it is crucial to encourage the development of innovative financial products and satisfy consumer demand. Hence, the public can enjoy “affordable” and “the most suitable” financial products and services. 


Promote mobile finance to build an efficient carrier of inclusive finance. 


Drawing upon experience from international practice, mobile technology will act as an important carrier of inclusive finance. We should strengthen industry guidance, business regulation, and accelerate legislation on protection of personal information, electronic signatures, and electronic certification. The development of Internet finance has promoted inclusive finance in some aspects. However, regulation and un-cultivation are both growing and should still be discussed. In addition, mobile finance is more promising.


Perfect regulatory policies to promote the sustainable development of inclusive finance. 


Creating a policy environment which is commercially sustainable for financial institutions is of primary importance for inclusive finance. The global community of inclusive finance appeared to establish a “Proportional Supervision” system internationally, which is also known as a “classified” or “discriminating” regulatory framework. Chinese inclusive finance market as its particular characteristics in the sense of regulation. Although supervised prudentially, it may still have some problems. It is called "died as soon as supervised, disordered as soon as relaxed." Furthermore, there are international regulatory behaviors in addition to macro-prudential and micro-prudential.


Strengthen consumer protection to achieve the ultimate goal of inclusive finance. 


Financial consumer protection and education are undoubtedly an important aspect of the development of inclusive finance in China. After the 2008 financial crisis, macro-prudential supervision, micro-prudential supervision, and financial consumer protection have become three significant pillars of the financial supervision system reform. The customers of inclusive finance are those who were excluded from traditional finance. They require more financial support, a certain degree of preferential policies, and protection. Our country has begun addressing these issues, but we have not done enough thus far.


I hope more people will pay attention to inclusive finance. Particularly, it is not only the changes to inclusive finance, but also changes to our ideas and our society. I hope we will achieve good finance and a good society.