Financial inclusion is in full swing in China. Small and medium sized banks continue to make their services more accessible at the grassroots level. While rural credit cooperatives and rural commercial banks are accelerating the introduction of technical means to improve their services, leveraging their comparative advantages, large banks and even mega banks are setting off a new boom of financial inclusion competition marked by the establishment of their financial inclusion divisions. In the insurance sector, several insurers are ready to embrace the blue ocean of financial inclusion. There is also encouraging news in the securities sector. Several securities companies have been involved in the issuance of bonds earmarked for poverty alleviation. Non-listed companies in poverty-stricken areas are eligible for IPO green channel. In the non-bank or even non-financial credit sector, micro-lending companies are gradually arising from the ashes, striving to rebrand and reposition themselves.
The development of digital financial inclusion is even more astounding. New payment methods that Chinese consumers are enjoying stun the world. Digital financial planning and investing services, online insurance and big data underpinned credit scoring and analytics products have proved their strong vitality and unique value despite some controversies. It is foreseeable that with such momentum, the development of financial inclusion will demonstrate unprecedented robustness and help people achieve their goals faster.
Of course，we should not rest on our laurels. Compared with early starters, financial inclusion in China had a relatively late start and has yet to have much experience or lessons to summarize. Given the relatively slow development of civil societies in China, businesses and government have to fill the void where in other countries civil societies spearhead the efforts, resulting in a variety of new problems. For example，business ventures are generally profit-driven and time-sensitive, and as a result, instead of going the extra mile, continuously refining as would be the case of nonprofit social enterprises, they may simply cut corners for instant profits. On the other hand, government can ensure a high efficiency, but usually at the price of a sustainable market and commercial momentum. Moreover，distortion is foreseeable in an environment without adequate integrity and self-discipline.
This year, I had the opportunity to participate in the study tour organized by CAFI to visit some renowned international financial inclusion institutions in three Asian countries, among which, BRAC of Bangladesh and BRI of Indonesia impressed me deeply. BRAC is arguably the largest nonprofit financial inclusion organization in the world. In addition to its microfinance business, it is also engaged in banking, education, retail and other sectors, with employees totaling up to 110, 000，of which 72% are female. Whenever it identifies a legitimate need of the impoverish segment of the society, whether such need being financial services, healthcare or education, it strives to provide the service across the board. BRI also has its own unique characteristics. Transformed from a state-owned bank, it is now a bank specialized in financial inclusion and has launched its own satellite to cover more than 10, 000 islands scattered across Indonesia. Interestingly, BRI has been able to maintain a sound operation, yet it is still making cost reduction efforts. Given the fact that manpower constitutes the largest portion of the total cost of microfinance, BRI established an agent mechanism to select the most outstanding customers to become its sales agents, thereby reducing costs. This fully shows that even a leading organization with over 10 years of rich experience in financial inclusion still needs to make constant efforts to improve their service capabilities.
What we can learn from these examples is that financial inclusion is neither limited to financing nor an effort once and for all. We need to make constant progress and improvement, with a focus on capacity building.
Once we identify the MSMEs( Micro，Small，and MediumSized Enterprise) and vulnerable groups as the main target group of financial inclusion, we will soon find out that their pain points lie not only in finance but also in their capacity. For example, most vulnerable households either give financial services a wide berth or find them difficult to comprehend. This situation can be attributed to the lack of financial knowledge and financial literacy. The financing difficulties confronting MSMEs involve many factors such as corporate business model, competitiveness and product life cycle, which can’t be simply addressed with granting of loans. Even in the financial sector, financial inclusion is not limited within the scope of microfinance. Since MSMEs and vulnerable groups in effect consist of several market segments, it is necessary to make targeted financial service arrangements for each market segment. Numerous studies have showed that MSMEs usually need more valuable equity investment such as angel investment, venture capital investment or the newly emerged equity crowdfunding. In other words，a multi-level capital market is an essential condition for the development of financial inclusion. All the above problems will be discussed in the 2017 Green Paper.
Literature on capacity building is voluminous, yet most of it focuses on the financial capacity building for households, such as financial education and financial literacy, while the practices in China have made it clear that the capacity building for households is just one of the basic factors of financial inclusion development. What may be more important is the capacity building for financial service providers.
Institutions that provide financial inclusion services, chartered or otherwise, all share the common problem of capacity building. Without outstanding capacity, healthy corporate governance and clear strategic positioning, it is hard to envision that they would be able to effectively promote the development of financial inclusion. Furthermore, the regulatory authorities at all levels that provide the infrastructure for financial inclusion and perform the function of financial regulation also have the problem of capacity building. Even at the national level, the development, implementation, evaluation and coordination of financial inclusion development strategies involve a large number of capacity-related factors. For example, in the context of China, an urgent topic that needs to be discussed and practiced is how to mobilize the resources of existing financial system, especially several major state-owned commercial banks in order to promote the development of financial inclusion. An even bigger challenge confronting the regulatory authorities is how to make specific regulatory arrangement for each market segment during the delivery of services to MSMEs and vulnerable groups. Moreover，in today’s digital age，households, financial institutions and government are all facing brand-new scenarios, which also leads to the challenge of building capacity.
All in all，capacity building is a big topic，and this year’s Green Paper will focus on exploring the correlation between financial inclusion and capacity building. We will be gratified if it can serve as a spur to induce future research and practice.
At present，in China’s academic community，a group of scholars and students have been brought together by their shared interest in financial inclusion. We have taken into consideration the mobilization of research resources at home at the inception stage of this year’s Green Paper and selected the research team on such basis. The 2017 Green Paper will again demonstrate the strength of financial inclusion research in China. I am proud of the significant quality improvement of this year’s report and I hope our efforts will be duly recognized by the readers.
Bei Duoguang
August 26th，2017
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