Business
Inclusive Finance in China
China has been accelerating the pace to build an inclusive finance system in recent years
  ·  2017-10-30  ·   Source: NO. 44 NOVEMBER 2, 2017

Thanks to technological innovation and policy support, China has been accelerating the pace to build an inclusive finance system in recent years. On September 27, a State Council executive meeting granted favorable policies to financial institutions that offer loans to small and micro businesses based on inclusive finance, such as targeted cuts to the required reserve ratio and exemption of value-added tax.

The concept of inclusive finance was introduced to China in 2005, a challenge to the conventional principle in its financial circles that “20 percent of clients create 80 percent of value.”

So far, six big and medium-sized banks have set up special business departments to conduct professional operations involving inclusive finance. By the end of June, loans for small and micro businesses had reached 28.6 trillion yuan ($4.31 trillion), up 14.7 percent year on year. Across the country, there are now 11,000 small lenders and 1,519 town banks, and private banks also participate in the inclusive finance.

China’s decision-makers attach great importance to the growth of inclusive finance and particularly encourage micro loans. However, some institutions and local governments have misused the “inclusive finance” concept due to a lack of understanding.

In recent years, Internet-based service providers outside the conventional financial system, such as Ant Financial, have bolstered inclusive finance and created development opportunities. However, opportunities are usually accompanied by risks, but there is a shortage of risk cushioning and accountability mechanisms.

In China, the government plays a big role in promoting inclusive finance. Experts suggest that the government should provide rational financial policies, effective supervision and financial infrastructure rather than directly interfering with operation of business.

(This is an edited excerpt of an article published in Caixin Weekly on October 16)

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