THE GREAT UN­BANKED

普惠金融进行中

The World of Chinese - - Contents - BY EMILY CON­RAD

Over 200 mil­lion Chi­nese cit­i­zens lack bank ac­counts, mostly the ru­ral and el­derly with lit­tle ac­cess to or trust of banks and tech­nol­ogy. As mo­bile pay­ment fur­ther widens the gap, how can China make sure its “un­banked” aren't left be­hind?

Qi Shengli had al­ways been dis­trust­ful of banks, fig­ur­ing the safest place to keep his life sav­ings was buried in his bed­room. “I might for­get the pass­word or num­ber code when I de­cided to make a with­drawal,” the 60-year-old Sichuanese farmer ex­plained to China Daily. The de­ci­sion would prove dis­as­trous: When Qi dug up the stash in 2016, he dis­cov­ered that ter­mites had breached its pro­tec­tive plas­tic and eaten nearly all the ban­knotes. Out of the 20,000 RMB he had hoarded away, only 600 RMB was sal­vage­able, ac­cord­ing to his lo­cal Bank of China branch.

Luck­ily, a Bei­jing artist heard about Qi’s plight and of­fered to buy the dam­aged ban­knotes for their orig­i­nal value in or­der to cre­ate a piece of art­work, warn­ing se­niors about the dan­gers of hoard­ing money at home.

Qi’s story is hardly out of the or­di­nary: De­spite the pro­lif­er­a­tion of ru­ral banks, as well as to­day’s high-tech mo­bile pay­ment sys­tems, China is home

to an es­ti­mated 10 per­cent of the 2.5 bil­lion global “un­banked” who op­er­ate out­side of for­mal fi­nan­cial in­sti­tu­tions.

Large as it is, this num­ber has halved over the last 10 years, the re­sult of a widely suc­cess­ful cam­paign to en­cour­age in­clu­sion in the bank­ing sys­tem. In 2011, only 64 per­cent of the pop­u­la­tion had a bank ac­count, com­pared to 79 per­cent cur­rently; over 200 mil­lion peo­ple (al­most the en­tire pop­u­la­tion of Brazil) be­came “banked” in less than a decade.

“Most peo­ple don’t have a good un­der­stand­ing of how Chi­nese banks op­er­ate,” says bank­ing ex­pert James Stent. The author of China’s Bank­ing Trans­for­ma­tion: The Un­told Story, Stent served on the board of China’s first non-state-owned bank, China Min­sheng Bank, as well as China Ever­bright Bank.

“Al­though they look like Western banks and act like Western banks, Chi­nese banks face a more com­plex set of in­cen­tives un­der a so­cial­ist mar­ket econ­omy,” Stent ex­plains. “Just like Western banks, they need to make money for the share­hold­ers, but they also must sup­port the de­vel­op­ment ini­tia­tives set forth by the party state.”

For in­stance, al­most all ini­tia­tives of Chi­nese banks re­quire ap­proval from the Chi­nese Bank­ing Reg­u­la­tory Com­mis­sion (CBRC). Ac­cord­ing to Stent, just to open a new Ever­bright branch, “we were told that we would only get reg­u­la­tory ap­proval if we also opened branches in other lo­ca­tions. That is how our branches in Ningxia and Gansu prov­inces were started.”

While the CBRC’S goal here was ex­plic­itly to pro­mote a more eq­ui­table eco­nomic de­vel­op­ment across the coun­try, Stent be­lieves that other im­per­a­tives went un­spo­ken. Chi­nese banks are ex­pected to pro­vide af­ford­able fi­nan­cial ser­vices to ev­ery­one, and the gov­ern­ment is “al­ler­gic to high fees, es­pe­cially when com­pared with the United States. It is clear that the gov­ern­ment wants the banks to profit from their other busi­nesses, not from manag­ing bank ac­counts.”

Dou Ben­bin, a risk man­age­ment of­fi­cer at the Shang­hai Min­hang BOS Ru­ral Bank, be­lieves that a lack of bank­ing cul­ture in many places in China also plays a role. “Banks need to reach out to as many peo­ple as pos­si­ble, so we make it very cheap to main­tain a bank ac­count.” How­ever, “in some places [cen­tral and western China], they don’t even have a phys­i­cal bank lo­ca­tion.”

The lop­sided na­ture of China’s eco­nomic growth—de­vel­oped cities along the eastern coast, ver­sus im­pov­er­ished coun­try­side in the in­te­rior—re­flects an in­creas­ingly large equal­ity gap. The gov­ern­ment has tried to mit­i­gate these dif­fer­ences by pri­or­i­tiz­ing poli­cies that ad­dress the “Three Ru­rals” ( 三农, agri­cul­ture, ru­ral areas, and farm­ers), in which bank­ing plays a vi­tal role.

China’s cur­rent bank­ing sys­tem be­gan with Deng Xiaop­ing’s re­form and open­ing-up pol­icy start­ing in the late 1970s. The state ini­tially cre­ated the “Big Four” banks, each with a dif­fer­ent man­date and de­vel­op­ment goal: the Bank of China (BOC) was in charge of busi­nesses re­lated to trade,

re­quir­ing for­eign ex­change ser­vices; the Agri­cul­tural Bank of China (ABC) was tasked with meet­ing ru­ral needs; the China Con­struc­tion Bank (CCB) funded con­struc­tion projects; and the In­dus­trial Com­mer­cial Bank of China (ICBC), a late­comer, was for China’s new gen­er­a­tion of busi­ness­peo­ple.

The man­dates quickly be­came con­vo­luted, though, as the econ­omy soared. Ad­di­tion­ally, banks had dif­fi­cul­ties bal­anc­ing com­mer­cial and pol­icy ob­jec­tives: In the early years of re­form, ABC in­curred mas­sive non-per­form­ing loans un­der a poverty alle­vi­a­tion pro­gram to sub­si­dize town­ship and vil­lage en­ter­prises. Dur­ing the early 2000s, while banks sought to be­come more com­mer­cially vi­able to get listed on stock mar­kets, ABC’S ru­ral ori­en­ta­tion put it at a dis­ad­van­tage. To pre­pare for its 2010 pub­lic list­ing (with the time, the world’s largest IPO), ABC closed more than 13,000 branches in western and cen­tral China, leav­ing 2,134 towns with­out a bank.

Ac­ces­si­bil­ity re­mains a prob­lem even to­day. Last year, 62-year-old farmer Tan Aiguo opened his first ABC bank ac­count with the help of his chil­dren. To get from his vil­lage to the clos­est branch in Buyun­qiao, a town in Hu­nan prov­ince’s Qi­dong county, he tells TWOC that he must ride a bus which only runs on “mar­ket days” (days end­ing ina1,4, or 7), mean­ing that he needs to plan any bank trip in ad­vance. Buyun­qiao’s 63,000 res­i­dents don’t have many op­tions, ei­ther; the town only has an ABC branch, a ru­ral credit co­op­er­a­tive, and a branch of the Postal Sav­ings Bank of China (PSBC).

Al­though he doesn’t have an ac­count with them, Mr. Tan is no stranger to the PSBC. When he ran a small butcher’s shop in Yun­nan prov­ince be­tween 1986 and 2006, Tan fre­quently used the PSBC’S pre­cur­sor, the Postal Sav­ings and Remit­tances Bu­reau, to send money home to his fam­ily. He would fill out a re­mit­tance ap­pli­ca­tion, which in­cluded the re­cip­i­ent’s ad­dress and name, and, after a cou­ple of weeks, his fam­ily in Hu­nan re­ceived the re­ceipt via China Post al­low­ing them to with­draw the cash—like a much slower and more bu­reau­cratic ver­sion of Western Union.

Mi­grant work­ers like Tan have long been among China’s most marginal­ized pop­u­la­tions: Barred from their adopted cities’ pub­lic ser­vices due to their ru­ral hukou (house­hold reg­is­tra­tion), they also face chal­lenges with non-pay­ment of wages, safe­guard­ing their earn­ings, and send­ing money home. Tan re­mem­bers hear­ing hor­ror sto­ries where fam­i­lies lost their PSBC re­ceipts, or a stranger in­ter­cepted them and with­drew the money.

These con­cerns are what likely prompted one woman, in a wellpub­li­cized case dur­ing the 2018 Spring Fes­ti­val, to climb into an X-ray ma­chine con­vey­ing her purse through se­cu­rity at Dong­guan train sta­tion. Many view­ers, who saw eerie neon­laced im­ages of the woman’s skele­ton on­line, were in­cred­u­lous that she would will­ingly put her body through such ra­di­a­tion—but oth­ers were sym­pa­thetic that the purse may have con­tained her en­tire sav­ings.

Both ABC and PSBC are ac­tively try­ing to meet the needs of ru­ral and mi­grant clients. ABC has is­sued over 96 mil­lion Kins Farm­ers Ben­e­fit Cards—debit ac­counts ac­ces­si­ble via phone, in­ter­net, ATMS, and

TO PRE­PARE FOR ITS PUB­LIC LIST­ING, ABC CLOSED MORE THAN 13,000 BRANCHES, LEAV­ING 2,134 TOWNS WITH­OUT A BANK

part­ner com­pa­nies where the bank does not have a phys­i­cal pres­ence. Two-thirds of PSBC’S 39,000 bank branch out­lets are at the county level or be­low, reach­ing a third of the pop­u­la­tion with more than 475 mil­lion clients (PSBC is also a leader in the mi­cro­cre­dit mar­ket, with 41 per­cent of its small loans given to en­trepreneurs and 59 per­cent to farm­ers).

But re­sis­tance re­mains strong among the el­derly, il­lus­trated by reg­u­lar re­ports of fi­nan­cial dis­as­ter be­falling hoard­ers. One el­derly woman in Jiangsu prov­ince buried 100,000 RMB un­der her kitchen to pay for her son’s wed­ding; by the time he fi­nally found a bride, the money had de­com­posed. Worms ate 35,000 RMB of a 67-year old fish­er­man’s life sav­ings after he buried them out­doors (the lo­cal bank was able to sal­vage 21,000 RMB by ex­chang­ing his dam­aged notes for new ones).

Their rea­sons are var­ied, but most cite dis­com­fort with open­ing an ac­count and us­ing ATMS. Tan says he was ex­tremely un­com­fort­able the first time he used a cash ma­chine: “I felt awk­ward…be­cause I knew noth­ing about the way it worked. I did not even know how to insert the card cor­rectly. The other prob­lem is my poor eye­sight. I have got­ten fa­mil­iar with the process, but I still need to bring my glasses along.”

His ABC branch has staff to help peo­ple nav­i­gate this in­ter­face, but an­other ma­jor dis­in­cen­tive, noted Dou, is the fact that many se­niors are il­lit­er­ate and un­com­fort­able with putting their hard-earned cash into a ma­chine they can­not un­der­stand, or los­ing face by ask­ing strangers for help.

More­over, open­ing a se­cure ac­count meets only the most ba­sic fi­nan­cial needs, and ru­ral dwellers seek­ing to bor­row, in­vest, and save are of­ten sucked into the mas­sive net­work of shady un­der­ground peer-to-peer (P2P) lend­ing schemes. “That is where the ‘vil­lage banks’ come in,” says Dou.

First es­tab­lished in 2005 in Sichuan, this com­mu­nity-based fi­nan­cial in­sti­tu­tion has pro­lif­er­ated, with over 1,600 vil­lage banks through­out the coun­try (and over 1,200 lo­cated in cen­tral and western China). They are sup­posed to fill the gaps that ma­jor banks are too big to fit into. “Many vil­lagers have chal­lenges bor­row­ing money,” ex­plains Dou. “They lack the spe­cific doc­u­ments to prove that they have the right to use their lands. Most ma­jor banks will not pro­vide loans to them be­cause of the lack of col­lat­eral.”

Dou’s job as a risk-com­pli­ance of­fi­cer re­quires as­sess­ing those in­di­vid­u­als who have fallen through the cracks. One of his great­est suc­cess sto­ries was lend­ing money to a tulip farmer near Shang­hai’s Hongqiao Air­port who lacked a pa­per trail to prove his as­sets, hav­ing al­ways paid for every­thing, in­clud­ing the tulip seeds, in cash.

After a lengthy in­ves­ti­ga­tion, Dou de­ter­mined that the Shang­hai Min­hang BOS Ru­ral Bank’s loan was prob­a­bly safe: the farmer was a lo­cal, with fam­ily in the area, a son in col­lege, and rep­u­ta­tion for hon­esty among his neigh­bors. The vil­lage bank gave the tulip farmer a loan—and once he had paid that back, an­other. To­day, the farmer has a ro­bust busi­ness, even leas­ing land in Yun­nan for ad­di­tional crop.

Vil­lage banks are a far safer, and reg­u­lated, al­ter­na­tive to P2P, which are in­fa­mous for turn­ing out to be Ponzi schemes. “Peo­ple know lit­tle about fi­nances and can be cheated eas­ily, es­pe­cially by bad terms on loans,” Dou says.

Cur­rently, state agri­cul­tural sub­si­dies, pen­sions, and med­i­cal in­surance reach

RU­RAL DWELLERS ARE OF­TEN SUCKED INTO THE MAS­SIVE NET­WORK OF SHADY UN­DER­GROUND P2P LEND­ING SCHEMES

900 mil­lion peo­ple, and in­sti­tu­tion­al­iz­ing these money trans­fers into a for­mal sys­tem has also con­trib­uted to en­rich­ing fi­nan­cial know-how. Un­der­grad­u­ates may ap­ply for their first bank card by pre­sent­ing their ad­mis­sion let­ters, con­tain­ing de­tailed in­struc­tions about de­posit­ing their tu­ition fees. Pen­sion­ers, such as Tan, are pro­vided with cards from the lo­cal ru­ral credit co­op­er­a­tive, with pen­sions de­posited di­rectly. “The gov­ern­ment opened my ac­count and de­posits 100 RMB each month,” he tells TWOC.

Ac­cord­ing to Stent, “China’s fi­nan­cial in­clu­sion ini­tia­tives are one of the coun­try’s great­est suc­cess sto­ries—yet very few peo­ple know about it.” In April, the CBRC merged with the China In­surance Reg­u­la­tory Com­mis­sion to form the China Bank­ing and In­surance Reg­u­la­tory Com­mis­sion, a mas­sive reg­u­la­tory au­thor­ity over the coun­try’s fi­nan­cial in­fra­struc­ture, part of what Stent calls the “next level” of fi­nan­cial in­clu­sion.

The tar­get cus­tomers are un­likely to be found among those who re­main un­banked, though. Asked how banks could im­prove, Tan re­sponded, “I am fine the way it is right now. I am an old ru­ral man; I don’t need many fi­nan­cial ser­vices.”

Bank em­ploy­ees help re­cover the 70,000 RMB a mi­grant worker lost in a fire

A Guiyang credit union’s “ pig­gy­back bank­ing” project brings fi­nan­cial ser­vices to re­mote vil­lages

A vil­lage loan of­fi­cer es­ti­mates a farmer's geese as­sets in Hu­nan

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