The Asia Global Payment Summit. Bali, Indonesia. 10-11 October 2019

Beijing Unveils 23 Measures to Support Financial Inclusion for Small and Micro-enterprises

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China’s central financial authorities have launched a slew of new measures to expand financial inclusion for the country’s small and micro-enterprises.

On 26 June the People’s Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the National Development and Reform Commission and the Ministry of Finance jointly issued the “Opinions Concerning Further Deepening of Financial Services for Small and Micro Enterprises” (关于进一步深化小微企业金融服务的意见).

The Opinions outline a total of 23 measures for expanding financial support for Chinese small business, in areas including monetary policy, regulatory assessment, internal controls, fiscal and tax incentives and improvements to the business environment

With regard to monetary policy, the Opinions propose:

i) An increase in the refinancing and rediscounting quota for small business or agricultural borrowers, as well as a reduction in re-lending rates of 0.5 percentage points;

ii) Improvements to regulation of the issuance of financial bonds by small and micro-enteprrises, and support for banking sector financial institutions that issue asset-backed securities for which the underlying assets are small business loans, in a move which is expected to unleash as much as 100 billion yuan in funds;

iii) The inclusion of small and micro-enterprise loans of under 5 million yuan with the scope of accepted collateral for the medium-term lending facilities (MLF) provided by the Chinese central bank as part of its open market operations.

With regard to fiscal and tax incentives, the Opinions propose:

i) Raising the VAT exemption ceiling from 1 million yuan to 5 million yuan for interest revenues on certain loans to small and micro-enteprirses and industrial and commercial clients during the period from September 2018 to the end of 2020;

ii) Strengthening regulation of financial guarantee firms that are supported by state financial guarantee funds, and ensuring that the percentage of guarantee funds used to support financing for small and micro-enterprises is no less than 80%.

The Opinions call for the strengthening the monitoring and assessment of loan cost and loan provision, and expediting a marked reduction in business costs, calling for

i) Banking sector financial institutions to strive to ensure that year-on-year growth in loans of under 10 million yuan to small  and micro-enterprises exceeds the pace of growth of other forms of lending;

ii) Further contraction in financing chains with the removal of unnecessary “conduits” or “bridging” links, and bans on the collection of commitment fees or capital management fees for small and micro-enterprise loans, as well as strict limits on the collection of financial advisory or consultation fees;

iii) Improvements to assessments of lending policy guidance results, and striving to improve the “precision” of the support provided by financial institutions to small and micro-enterprises.

With regard to financial inclusion, the Opinions call for:

i) Large-scale banks to continue to establish financial inclusion departments, and extend financial inclusion service points to the base level, as well as encourage banks that have not established financial inclusion departments to establish community sub-branches and micro-branches;

ii) The promotion of the normalisation of private banking;

iii) Ensure that banking sector financial institutions strengthen internal incentives, and that small and medium-sized banks expand internal funding support. Extend the implementation of due diligence measures for small and micro-enteprises;

iv) Use modern fintech methods to advance specialist activities such as accounts receivable financing for small and micro-enterprises, expanding the accessibility of financial services.

The releases of the Opinions follows the launch of targeted cuts to the required reserve ratios for Chinese banks that had the goal of expanding funds to smaller lenders, who are more inclined to provide loans to small businesses.

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