The Achievements, Challenges and Development of Inclusive Finance

By Li Junfeng

Director of Inclusive Finance Department 

China Banking Regulatory Commission 


I’m very pleased to participate in "good finance, good society" forum, which is the first time I participate public event on this topic since our department in CBRC was established last year. To be frank, I am not an expert in this area, but just have dabbled in for half a year since my appointment. Here we have a lot more experts who know more, so today I am here to learn and to report the development of our department since establishment. 


As a concept or strategy, what inclusive finance emphasizes is the fairness of financial services and the sustainability of financial products; as a practice, inclusive finance emphasizes that universe of financial services and the availability of financial products. This philosophy and practice have a great strategic significance for China to build a moderately prosperous society and build a harmonious society, so the introduction of financial inclusion has become a mandate by the Chinese government and the public. Since 2005, the Chinese government had demanded the development of inclusive finance. This year Premier Li Keqiang proposed the financial inclusion strategy in the Government Work Report so that all of the market drivers and citizens can benefit from conventional financial services. Those all are emphasizing the fairness of financial services, and the right of our people and every market driver to gain financial services. Now please allow me to report our performance from three perspectives. 


NO.1 The current status and achievements of China inclusive finance development


First of all, I would like to introduce in recent decades, especially since 2012 the Chinese government proposed the development of inclusive finance, remarkable achievements have been made in the development of inclusive finance. That is mainly in the following five aspects.


(A) Formation of a diversified financial service supply system


China emphasized multi-level diversified financial supply in the development of inclusive financial aspect, mainly to play network advantages of the traditional and formal financial institutions, and also to focus on new role of new format situation and new institution for the service to the low-income, especially the crowd that traditional financial institutions can not cover. In recent years, in addition to Chinese formal financial system, there has been a large number of new financial practices, including consumer financial companies, financial leasing companies, small loan companies, financing guarantee companies and online marketplace lending. These new financial institutions have their unique advantages and utility to service in terms of inclusive finance. Especially China focused on the role of new technologies in the development of inclusive financial aspects of inclusive finance, the "Digital Finance" developed very fast in recent years, our network lending on payment aspect of mobile payment and mobile financing, online banking business on financial service aspect, etc., is forming the pattern of symbiotic development of online digital finance and offline traditional finance.


(B) Significantly improving coverage of basic financial services 


Inclusive finance includes accounts, payments, savings, credit, insurance and investment. From the coverage, here I can list you a series of numbers: In the countryside, our network coverage-bank financial institutions in township level was 96%, which meant we had 96% of the towns that had a bank of physical outlets, containing postal savings banks, rural financial institutions and etc. At the village level, coverage of basic financial services was 92%, the majority of farmers owned accounts in the bank; in the city, we basically achieved full coverage of financial services.


(C) Striking strengthening in weak area of financial services


The two aspects of rural financial services and microfinance services show that, according to Chinese government statistics recently, there were more than 5000 million small and micro enterprises. Small and micro enterprises who obtained credit or financing support from the bank or financial institutions were more than 20%. Hence there were 11.58 million small and micro enterprises had access to credit from the formal banking financial institutions, excluding new formats services. In rural areas, financial service coverage was also more than 22 %, which means more than 22% of the households having credit balance in bank. Meanwhile, the satisfaction or accessibility of weak link of financial services increased. For example, the accessibility of microcredit had been greatly improved. The coverage was more than 20%, and credit availability was 91%. That is, 100 small and micro enterprises applied for a loan from the bank, about 91 could obtain bank credit support.


(D) Gradual active of the innovation in financial products and services


To meet the financial needs of all market players, especially vulnerable groups, it must be through product innovation, channel innovation and service innovation, and to tailor and match the product with them. Over the years, innovation in the banking sector was increasing. Inclusive finance had the condition of using new format technologies. Meanwhile, in the inclusive finance exploration, a lot of good models were created, such as the financial service grid model created in Hubei province, which put financial services into the urban community grids and rural village grids. Financial institutions in each of the grids implemented their own responsibility of financial institutions so that financial services could cover all urban and rural groups. We have some good models, such as Qinghai province. Since there was no information network in farming and pastoral areas, we launched the "double linkage". With this method, the credit and village Council, the village branch are combined by grassroots banking financial institution. Village government and the financial institutions work together to solve financial services for herdsmen in pastoral areas. In the east China, such as Zhejiang Province, the construction of financial services is remarkable. They created village-level rural financial service integrated stations in villages, which helps household enjoy the basic financial service and comprehensive financial service without stepping out of the village.


(E) The gradually development environment of inclusive finance

With the support of inclusive finance policy, we introduced a series of precise policies which improved the construction of financial infrastructures, information system and payment environment of inclusive finance. 


NO.2, current challenges of inclusive financial development

Currently, our focus of the development of inclusive finance is to resolve the effective financial demand of vulnerable fields, vulnerable areas and vulnerable groups. Inclusive finance is not only for the poor areas, but also bring inclusive benefits to all our citizens and all market supply, but the focus is to solve financial service problems of disadvantaged areas, disadvantaged enterprises and disadvantaged groups, which is the most important. In solving the "three disadvantaged” aspect, the truth is that China is facing extreme challenges. In below, this report will present the challenges in five aspects.


(A) the co-existence of the insufficient of sustainable development and non awareness of social responsibility of financial institutions 

To achieve its sustainable commercial development, we need the certain policy support for inclusive finance. Until now, we can see insufficient of sustainable development when commercial banks handle small-micro and rural financial service business. Especially in the current period of economic downturn, the risk of inclusive financial is increasing and exposing. The new format business is also facing sustainable challenges. For example, the network loaning business with new format is out of persistence in the long term; but in the short term we may see its breakeven point and profit point, but it encounters some challenges. At the same time, it should be said that our big banks or small ones, the majority of our banking institutions in inclusive financial services especially in the service weak aspect is lacking of endogenous dynamic. It is difficult to balance the relationship between commercial bank profit maximization and social responsibility. Some commercial banks lack of awareness of social responsibility, or take financial performance as the only assessment which is leading to the lacking of social performance especially social responsibility. 

I think this is the first challenge that some of banks failed in balancing commercial profitability and social accountability. 


(B) conflicts between various need and risk awareness of financial 


Whether in our current market driver or the majority of the urban and rural residents, the need for financial service is very strong, such as investment, wealth management and financing. But still our financial education is underdeveloped, and venture capital awareness is not completely universal. Therefore, there is irrational financial consumer or financial investment caused which I think it is a gap of current progress of financial inclusion development.


(C) Imbalance about the allocation of financial resources

For now in China, over completion of finance and non-competition or insufficient competition are co-existed. Chinese financial resources have developed rapidly in recent years, but the allocation of financial resources is still tilting to large customers and urban area. This financial problem of over competition has already existed, refers to the situation of grabbing big customers and grabbing high-quality customers that we are talking about. In urban areas, we can see financial institutions and welfare outlets everywhere while in our disadvantaged areas, vulnerable areas, weak groups, we only can see the insufficient competition, or even blank service. Such as in rural areas, younger-older-border areas, low-income groups, small and micro enterprises, as well as households, financial services, and even blank are lacking; in other areas, the situation of imbalance finance resource distribution also exists.


On the basis of financial services, we have a lot of indicators which are ahead of the international average. For example, the possession of debit card by adults is much higher than that of world average; the account establishment is also much higher than that in the other countries. However some of the account are not used often which means we are facing the low efficiency problem. Also there are shortcomings in financial resource allocation, like the excess production capacity in some industry. Most of the finance resources are occupied by infrastructure construction leading to insufficient fund of disadvantaged enterprises, small and micro enterprises or countryside area.



(D) The co-existence of high cost and high challenge in financing in vulnerable areas and for vulnerable groups 


For the financing difficulties, speaking from the coverage, there are still a large number of consumers and enterprises cannot get services from formal financial institutions even a lot of work and adjustments have been done by banking institution in these years. This can be understood as a twenty-eight law, that 80% of the regular customers have not got services from formal banking financial institutions at least from financing. At the same time, high cost in financing problem still exists. Over the years, especially those vulnerable groups, vulnerable customers’ cost to get capital is still relatively high. Despite recent years has been promoted, but in general, especially in the current economic downturn, the problem of expensive financing and difficult financing remains unresolved.


(E)  The co-existence of insufficient innovation of traditional financial institutions and deficiency of new financial sector


Traditional financial institutions should change the service channels by new technology to create new financial products. In these past few years there are improvements and innovations but not enough. At the same time, new industry in general is developing rapidly , but lack form and mechanism to reach a healthy and sustainable development. P2P loaning networks grew exponentially on aspect of platform number and platform volume in recent years especially last year, but problems double increase every month.


This is what I want to give you a second aspect of the report. Currently we have lots of challenges particularly, including our policy, motivation, financial facilities, etc.


No 3 to further promote the development of inclusive finance under the new normal


It is the necessary requirement for building a socialist harmonious society and a comprehensive well-off society to develop inclusive finance, and getting all market drivers and residents enjoy financial services. 


In this report, there are suggestions under five aspects to promote the development of China inclusive finance by the government or regulators.


(A) To strengthen the concept of consensus


Consentaneous concept is prerequisite to promote the development of inclusive financial, as the forum held today, "good finance, good society". Without the concept of inclusive finance, financial format and financial institutions will have difficulty to develop inclusive finance as an endogenous power. This is external.  In terms of concept, I think there are several issues that must be consensus.


First, it is essential to understand the meaning and emphasis of Inclusive finance. People have different understanding on inclusive finance. We are have a forum instead of a training so the presentation won’t focus on explaining the definition and content of inclusive finance. But at least, common understanding should be reached.


2. Inclusive financial characteristics should be an accurate grasp on 

There are five characteristics of inclusive financial aspects that need to be grasp: ① inclusive finance is a continuing finance rather than intermittent, inclusive finance must be a sustainable financial system; ② inclusive finance must be a fairness finance, is the equal right of financial services enjoyed by every market subject and every individual; ③inclusive finance is a kind of available finance, inclusive finance command convenience that financial consumer can get financial services through a suitable route and reasonable prices which emphasizes the availability; we can not say that there must be supply, but what consumers can not get or get an expensive service is not OK; ④ back to inclusive finance’s English concept itself, it is also “financial” inclusion; ⑤ inclusive finance in the final is a kind of welfare finance.


To reach a consensus on the concept, I think we must overcome two extremes: one extreme is to exclude the role of government and necessary policy support as reason that inclusive finance must have commercial sustainability, this is wrong. Inclusive finance commercial sustainability needs to be solved by management of market players and risk management, and also must be supported by external policy conditions. The another extreme is to see inclusive finance as a charitable finance or as a political finance. I think this went to another extreme. It must be in the middle of sustainable business and social responsibility, or between financial performance and social performance and economical benefits and social benefits, businesses organizations have to find a balance. This is consensus concept we should have.


(B) To strengthen top-level design for the development of inclusive finance and to develop strategies for sustainable development


This is a very important job we Inclusive Finance Ministry should do that to led to develop strategic planning of Chinese future development of inclusive finance and put forward the goals of Chinese inclusive finance development and the necessary path and measures to achieve these goals in the future. At the same time, each of our local government or each agency should base on their own characteristics to formulate their own development strategies in terms of inclusive finance.


(C) To improve the development mechanism of inclusive finance 

If we do not have mechanism for inclusive financial development and ask people to develop inclusive finance emptily, that will make inclusive finance flow in a slogan or a statement. The formation of this mechanism, needs comprehensive effort in all aspects of financial majority, government and society. From financial institutions themselves, it’s necessary to create a more scientific and comprehensive evaluation mechanism to assess the coverage of business and financial institutions namely their coverage on farmers, low-income groups and small and micro enterprises, not just assess the income of financial institutions. Commercial financial institutions must form an assessment of the internal mechanism that financial performance and social performance are balanced on internal assessment mechanism. From the government, it must precisely force on monetary policy, fiscal policy and tax policy to form a political support for the development of inclusive finance. Without such a mechanism, driven by government’s plan or promotion alone, and rely on their own initiative of commercial and financial institutions, I think it’s not work, we must resolve the power problem of inclusive financial development from the mechanism.


(D) To establish a multi-level, complementary and competitive service system and supply system of financial product


In this regard, we need play enthusiasm, from inclusive finance in general, the body is still the formal banking institutions. Commercial banks are required to use the new technologies and new products to expand the influence of low-income people or disadvantaged businesses and improve their coverage of such clients and groups. And also we need play a new format, so that they can play a useful complementary role in inclusive financial terms. New format has a prominent feature. In a typical lending network, they have the advantage to get these conventional aspects of customers’ information. In aspect of addressing the low-income customers’ problems, they may have an advantage, and may be more efficient in financial services on other way. If a new format is well managed and well handled, it may also reduce the cost of financial services. Therefore, the development of new formats, I think it is a stone kills two birds, one is to mine the ability given by these conventional customers, another is to stimulate the potential of banking institutions. Commercial banks should further strengthen interoperability with emerging technologies, specially the use of new technology to change the service model and service channels of commercial banks.



(E) To enhance protection support

On guarantee inclusive financial system, there must be three system established: First is establish evaluation and examination system of inclusive finance, in the end what indicators can be measured the degree of development of inclusive finance. Now, we use the coverage, availability and satisfiability to quantify the extent of the development of inclusive finance and evaluate inclusive finance. Second is there must be supporting financial infrastructure construction and financial environment; Third is we must have a legal system that can make the development of inclusive finance standardly and orderly.


The development of inclusive finance is a great significance for China to build a moderately prosperous society, and to promote the development of inclusive finance is the common responsibility of all of our financial institutions, government departments and all sectors of society.


Finally, I would like to encourage each other in one sentence, that is, through efforts to make our financial services to better popularize urban and rural areas and to benefit all the people.