The China Banking Association has highlighted several key challenges to improving the provision of financial services to more members of the country’s real economy.
Pan Guangwei (潘光伟), vice-head of CBA, said to the Xinhua News Agency that despite making major strides in recent years China’s financial inclusion continued to lag when it came to important target areas such as micro-enterprises and economically disadvantaged groups.
Key reasons include a lack of credit information and collateral, as well as the high risk and cost involved in the provision of financial services to such clients.
According to Pan the three main challenges that Chinese financial inclusion currently confronts are commercial sustainability, the need for improvements to the financial infrastructure and ecosystem, and the need to strengthen education of financial consumers.
“The development of financial inclusion isn’t a ‘voluntary blood donation’ or a ‘work duty’,” said Pan. “Only by upholding the principle of commercial sustainability and the establishing sound incentive and restraint mechanisms will it be possible to ensure the sustainable development of financial inclusion.”
Key improvements to financial infrastructure would address the diffuse and fragmentary state of credit information, external risk sharing, and inadequate compensation systems.
Pan further points out that China’s financial consumers need further education with respect to the concepts of responsibility and risk, given that the concept of “absolute payment” continues to remain widespread in Chinese society.
He recommends strengthening of the legal system and infrastructure, the establishment of a small and medium-sized enterprise financial guarantee system and risk compensation mechanisms, as well as the establishment of a financial inclusion credit information system.
“The development of financial inclusiveness cannot depend upon banking institutions alone,” said Pan. “It requires the contribution of various sectors, industries and spheres of society.
“Emphasis should be given to the creation of financial links that support the development of small and medium-sized enterprises.”