This is the first of a series of Microfinance Gateway highlights on access to finance in China. During this series, we will look at policy changes, new and existing financial service providers, and some of the key development partners working in China to promote broader access to quality financial services. This highlight provides an overview of the financial services landscape. To read this highlight in Chinese, click here.
While preparing to host the Olympics next year, China is also making Olympian efforts to expand the range of financial service providers and promote an enabling policy environment.
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Photo credit: Jennifer Isern |
With a population of 1.3 billion people, the potential of broad-based retail financial services in China is huge, but largely untapped. Detailed information on the number of people with access to financial services is not currently available. While many people have access to deposit services through the China Post, other services are not as widely offered. The China Banking Regulatory Commission (CBRC) reported in November 2006 that only one-third of China’s more than 750 million people living in rural areas have access to formal loans. Throughout the country, lenders are beginning to respond to demand for:
- Consumer loans
- Farm production loans
- Off-farm business loans
- Home improvement and mortgage loans
- Credit lines and credit cards
- Other lending services
At the same time, the demand for financial services in both urban and rural areas is expanding rapidly beyond these lending products to include a range of deposit services, money transfers, and insurance.
Since 2006, a number of changes demonstrate signs of potential progress. First, the Chinese Government is placing renewed emphasis on rural development. In addition, the People’s Bank of China (PBOC, China’s Central Bank) and the CBRC have launched new financial services pilot programs to expand the range of available formal financial institutions, especially in rural areas. Further, several financial institutions are starting to offer financial services to a broader range of clients, including low-income and rural clients.
Introducing supportive new policies
At the top-level National Financial Work Conference in January 2007, China unveiled a package of policies to tackle the pressing challenges faced by the financial sector. Of particular note, Premier Wen Jiabao announced that the government will push for innovation in providing financial services in rural areas and build a multi-tier rural financial structure. At this conference, the government also confirmed that China’s three policy banks - China Development Bank, Export-Import Bank of China, and the Agricultural Development Bank of China - would commercialize, and that the Agricultural Bank of China would be restructured to focus more specifically on services for agricultural producers and rural businesses.
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Photo credit: Jennifer Isern |
Over the past decade, more than 100 Chinese organizations have piloted microfinance initiatives, often supported by international donor agencies. The Funding for the Poor Cooperative and the China Foundation for Poverty Alleviation are two of the largest programs, each serving more than 15,000 clients in rural areas. The Chinese Association of Microfinance was established in 2005 as a network to share information on microfinance and represent MFIs working in China. In addition, other types of institutions are launching new or improved financial services for low-income clients, including:
Rural Credit Cooperatives (RCCs)
First launched in the 1950s, today there are more than 30,000 Rural Credit Cooperatives (RCCs) that are being consolidated into RCC unions. The government initiated a series of government reforms in 2003 to tackle key issues in operational management, corporate governance, and staff capacity building. Results of the reforms are mixed to date, although some of the stronger RCC unions have transformed into Rural Cooperative Banks.
China Post
China Post is a well-established provider of savings and money transfer services. In March 2007, China Post received authorization to establish the Postal Savings Bank of China (PSBC) as an independent financial institution to provide rural retail services.. Benefiting from China Post’s extensive branch network throughout the country, the PSBC is well positioned to expand services to include loans, insurance and other financial services, in addition to existing savings and money transfers services.
City Commercial Banks (CCBs)
More than 130 City Commercial Banks operate in primary and secondary cities throughout the country. In 2006, the China Development Bank (CDB) launched a major effort to provide funds and technical support to selected City Commercial Banks that lend to micro, small and medium enterprises. This program has already begun to show results, with eight institutions in eight provinces currently managing a combined portfolio of over $80 million in loans outstanding to over 12,000 clients. The CDB program is supported by the World Bank and Kreditanstalt für Wiederafbau (KfW), with technical assistance for the selected City Commercial Banks provided by IPC GmbH.
Pilot microcredit companies
The People’s Bank of China and local governments in pilot provinces authorized licenses for seven pilot microcredit companies in five provinces in late 2005. For now, these microcredit companies will provide only lending services targeting the middle- and low-income market in western China’s provinces of Shaanxi, Sichuan, Guizhou, and Inner Mongolia.
Village banks
In late 2006, the China Banking Regulatory Commission (CBRC) announced a new rural finance strategy with new licensing and supervision requirements and authorizing a range of new financial institutions, including 'village and township banks.’ Building on this, CBRC launched a pilot of village banks to deliver lending and deposit services in 36 counties in the provinces of Sichuan, Qinghai, Gansu, Inner Mongolia, Jilin, and Hubei.
Agricultural insurance providers
Also in 2006, China’s central and local governments launched a partially-subsidized rural insurance pilot program for crop and livestock insurance. In response, a number of Chinese companies are beginning to provide this type of insurance.
Mobile banking providers
Yet another actor has recently entered the financial services sector. China Mobile and China Unicom launched mobile banking and information services. With more than 600 million mobile phone users in China as of June 2007, text payments and other mobile banking applications are starting to grow in popularity. While policy, regulatory, and other challenges remain, mobile banking applications could help reduce costs and significantly expand a broader range of financial services to to remote areas.
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Photo credit: Enjiang Cheng |
As the policy and institutional landscape changes in China, the need for training and technical support has never been greater. Over the past few years, a number of development partners have been actively promoting access to finance in China:
- Asian Development Bank
- European Union
- Ford Foundation
- German Technical Cooperation (GTZ)
- German Development Bank (KfW)
- International Fund for Agricultural Development (IFAD)
- United Nations Development Program (UNDP)
- World Bank Group, including the International Finance Corporation
Given the rapidly changing financial sector, these agencies are working with the government to promote sound policies, sustainable financial institutions, and quality financial services for a greater range of clients in urban and rural areas.
Conclusion
Accelerating during the past two years, access to finance is evolving rapidly in China. With these Olympian efforts underway, the future looks promising for an enabling policy and regulatory environment. Already, a broader range of financial service providers is starting to see the potential market of deposit, lending, money transfer, and insurance services in both urban and rural areas. Continued focus on strong, sustainable institutions and appropriate policies is needed to ensure a national gold medal for greater access to finance.