Inclusive finance to lift fintech firms
With more banks offering services for inclusive finance, companies offering credit reporting systems based on big data analysis will benefit, said analysts.
Financial technology or fintech companies, particularly those focused on credit analysis, will greatly reduce cost of lending and also reduce credit risks. So, they are likely to experience fast growth on market demand as commercial banks are joining the inclusive finance market.
That market is currently dominated by smaller, private financial institutions, such as peer-to-peer or P2P lending platforms and consumer finance platforms.
Li Bin, CEO and president of Shanghai-based fintech company Huaxia Finance, said the size of unmet inclusive financing is “significant” because lenders often have concerns over non-performing loans.
In China, only 30 percent of citizens are covered by existing credit reporting system, while in mature markets the percentage could be 70 percent or higher.
“Infrastructure for credit reporting systems remains to be completed, but it will take time. But we can’t just wait. Fintech solutions help build models that keep non-performing lending rate to a stable level that guarantees steady scaling up without expanding risk exposure,” said Li.
By the end of July, the five biggest banks in China— Industrial & Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank of Communications and Bank of China — had launched inclusive finance arms, just two months after the authorities concerned called for better financial services for a wider group of people across China.
More banks are to set up inclusive financing to better finance smaller enterprises, farmers and underprivileged people who have little access to financing services, Zhongtai Securities said in a research note.
A research note by Beijingbased Analysys International said the market for financial information and fintech solutions related to inclusive financing could reach 100 billion yuan ($14.7 billion) in the next decade.
Credit investigation and reporting technologies could reduce operational cost of lending 1 million yuan to 2 yuan from 2,000 yuan, according to Analysys research.
Wu Xiaoling, a NPC Standing Committee member and former deputy governor of the People’s Bank of China, said banks should “update their understanding” of inclusive finance, and take advantage of technologies and infrastructure related to credit reporting systems.
By using internet-based technologies, mobile payment technologies and big data analysis, banks could have better access to data than ever before, which would help understand small borrowers’ credit record and financial situation.
For first-time small borrowers, technologies could fill in, in terms of compensating for the lack of record of previous borrowings, said Wu.
Xue Zhenghua, chief technology officer of Beijing-based Hengchang Finance, a fintech provider, said internet-based technologies will help lenders to collect information in an effective and precise manner.
“Internet technologies offer complete solutions beyond just a channel of lending. The point of inclusive finance is to be as inclusive as possible, making financing accessible to more clients without expanding risks,” said Xue.
30 percent of citizens are covered by credit reporting system, so there is scope for growth