Background to the Investment in Inclusive Finance in China Working Group
A large part of China’s population does not have access to the financial services they need. Dedicated rural financial institutions have been marred by inefficiencies and lack of effective outreach to the excluded. In addition, big national banks have recently moved away from the rural areas.
As a consequence, most people use informal financial services from pawnshops, moneylenders, friends and family and the like. Not only is the supply of such informal services limited, people who use them are also vulnerable to abuse and fraud.
The government of China is gravely concerned about lack of access to formal financial services. This situation not only limits its ability to implement economic and monetary policy but also implies risks for financial stability. Continued high levels of exclusion also entail the danger of social unrest and put into jeopardy the overarching goal of social harmony.
Since 2005, the government has been taking decisive action to make the system more accessible for all. It has decided to promote microfinance as a line of business in existing institutions (e.g. City Commercial Banks, Rural Credit Cooperatives, Postal Savings Bank of China) and as the main product of a set of new business models (e.g. MicroCredit Companies and Village & Township Banks).
In 2007 and 2008 it issued guidelines for the new business models intended to ensure a balance between safety and effectiveness. Provincial governments were tasked to develop their own specific regulations, and public and private investors were invited to establish pilot institutions. After some years of experimentation, the national government is expected to develop country-wide legislation.
As a consequence, most people use informal financial services from pawnshops, moneylenders, friends and family and the like. Not only is the supply of such informal services limited, people who use them are also vulnerable to abuse and fraud.
The government of China is gravely concerned about lack of access to formal financial services. This situation not only limits its ability to implement economic and monetary policy but also implies risks for financial stability. Continued high levels of exclusion also entail the danger of social unrest and put into jeopardy the overarching goal of social harmony.
Since 2005, the government has been taking decisive action to make the system more accessible for all. It has decided to promote microfinance as a line of business in existing institutions (e.g. City Commercial Banks, Rural Credit Cooperatives, Postal Savings Bank of China) and as the main product of a set of new business models (e.g. MicroCredit Companies and Village & Township Banks).
In 2007 and 2008 it issued guidelines for the new business models intended to ensure a balance between safety and effectiveness. Provincial governments were tasked to develop their own specific regulations, and public and private investors were invited to establish pilot institutions. After some years of experimentation, the national government is expected to develop country-wide legislation.
