Digitalization injects impetus into financial inclusion

Lenders in nation ramp up efforts in innovation, high-tech development to provide better services, bridge info gaps

China is heading toward digital financial inclusion, which has become a path that financial institutions must follow to tackle small business lending challenges, experts said.

Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs and are delivered responsibly and sustainably, according to the World Bank.

The Chinese banking sector is making proactive efforts to adapt to new changes and challenges through digital transformation, to provide convenient financial services anywhere and anytime while reducing information asymmetry between small businesses and commercial lenders, said Liu Feng, secretary-general of the China Banking Association.

Chinese banks have formed a broad consensus on using digital technologies to enable the sustainable development of financial inclusion, including digital transformation in their strategic plans and ramping up investment in this regard, Liu said at the recent annual China Financial Inclusion Innovation and Development Summit recently held in Beijing.

Last year, total fintech investments of 17 national commercial banks, excluding China Zheshang Bank Co which did not disclose specific information, amounted to 168.5 billion yuan ($23.4 billion), accounting for 3.65 percent of their total operating income, their annual reports said.

At the end of 2021, the total number of fintech personnel of six large State-owned commercial banks reached 95,600, accounting for 5.22 percent of their total headcount, Liu said.

Some listed banks have launched mobile banking applications that specialize in serving micro and small enterprises.

China Construction Bank Corp recently released version 3.0 of its mobile lending service application specifically targeting small businesses, self-employed individuals and farmers. The Beijing-based State-owned commercial lender said it has upgraded the application into a comprehensive service platform, which connects government agencies and service providers focusing on niche market segments, to better serve the real economy.

Launched in September 2018, the CCB app called "Hui Dong Ni" has so far had over 8.5 million corporate clients. Accumulated loans issued via the app amounted to nearly 5 trillion yuan, and the current total balance of loans is 1.19 trillion yuan, said Guo Chaojing, leader of the app update project.

On version 3.0 of the app, CCB has introduced new lending service functions and will provide wealth data visualization, income-expenditure analysis and customized wealth management services to small businesses. It will also collaborate with partners to satisfy the needs of small businesses in many areas, including express delivery, financial management and legal consultation, Guo said.

The upgraded app will provide new ideas for the development of digital financial inclusion. By building a platform-based ecosystem through open and shared development and win-win cooperation, CCB will allow more participants to better serve small businesses and enable such businesses to sustain long-term growth, said Yin Youping, deputy director of the financial consumer protection bureau at the People's Bank of China, the central bank.

The PBOC is guiding financial institutions to deepen the development of digital financial inclusion, which has become an effective way to help small businesses overcome financing difficulties, Yin said.

Industrial and Commercial Bank of China and Postal Savings Bank of China, two other large State-owned commercial lenders, have also built mobile financial service platforms targeting micro and small enterprises.

Financial institutions must rely on digital transformation in the future, said Zhang Wei, vice-chair of the National Institute of Financial Research at Tsinghua University.

To better deal with the information asymmetry problem, financial institutions have to use small businesses' data accumulated online to analyze their operating status and make lending decisions, rather than simply relying on their financial statements.

In addition, financial institutions must make online, digital and smart transitions so that their returns on small business loans will cover risks and their lending costs will be reduced, Zhang said at the summit.

As of the end of September, the balance of loans to micro and small enterprises that have a total credit line of up to 10 million yuan per borrower reached 23.16 trillion yuan in China, up 24.6 percent year-on-year, according to the PBOC.