Building a Higher Standard of Inclusive Finance Model
China is home to over 53 million small and micro enterprises (SMEs), making it one of the countries with the largest number of SMEs globally. However, statistics show that the average life cycle of Chinese SMEs is only 2.7 years, with less than 2% surviving for more than a decade. Inclusive finance is characterized by a typical long-tail effect, featuring small amounts and dispersion. The majority of inclusive finance clients operate on a small scale with limited capabilities, and have unstable sources of repayment, and collateral and guarantees remain the primary means of risk mitigation. There is also an inherent contradiction between the diverse financial needs of long-tail clients and the high cost of services.
In 2013, the development of inclusive finance officially became a national strategy in China, beginning to explore the construction of a long-term mechanism for the development of inclusive finance that is compatible with incentives. Relevant policies and measures have been introduced one after another, and the policy system supporting the development of inclusive finance has taken shape, significantly improving the coverage, accessibility, and satisfaction of financial services for SMEs, and propelling China's inclusive finance to a leading position globally. The 2023 Central Financial Work Conference clarified the key work direction of inclusive finance in supporting the real economy, with policies accelerating their rollout. Data from the National Financial Regulatory Administration shows that loans to small and micro enterprises continue to grow rapidly. As of the end of the third quarter of 2024, the balance of inclusive loans to small and micro enterprises nationwide reached 32.58 trillion yuan, a year-on-year increase of 14.69%. The average interest rate for new inclusive loans to small and micro enterprises in the first three quarters of the year was 4.42%, a decrease of 0.35 percentage points from 2023.
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Chinese financial institutions continue to create commercially sustainable models for inclusive finance, breaking the "impossible triangle" of accessibility, risk, and interest rates in inclusive financial services. In terms of specific development models, large banks typically adopt a nationwide scale promotion model, fully leveraging the advantages of their extensive network and employee base, which has gradually shown characteristics of high efficiency, high quality, and low risk in recent years. Some banks have established inclusive finance development committees, formulated strategic plans for inclusive finance, and set up inclusive finance management institutions at various levels. Some regional commercial banks adopt a regional market focus model, relying on services to specific regions and target groups to achieve profits. Some new commercial banks with digital advantages, based on a vast base of mobile payment customers and transaction records, rely on big data, artificial intelligence, and other technologies to provide differentiated services. More and more large and medium-sized banks are elevating the secondary departments of inclusive finance, which were originally under the retail or corporate finance departments, to primary departments, establishing professional departments, teams, and management systems, and formulating credit management policies that meet the needs of inclusive finance, promoting the sustainable development of inclusive finance business.
Chinese financial institutions deeply explore the potential of digital technology to create a Chinese model of digital inclusive finance. With the continuous maturation of inclusive financial products and service systems, especially the rapid development of digital technology, it is possible to collect information and reach users at a low cost. The technology operation cost for individual customers has dropped to one-tenth of that of traditional banks, while also reducing the operational and credit risk management costs for financial institutions, thus achieving scale growth under controllable risks. At the same time, it reduces costs and increases profits, fundamentally changing the scale, cost, and risk function relationship of small and micro-enterprise loans, and also promoting inclusive finance from the initial policy-driven and regulatory-oriented model to a commercially sustainable model.
Looking at the development trend, China still has the conditions to continue to improve the digital inclusive finance ecosystem based on outstanding progress in inclusive finance, from the aspects of policy system improvement and technology platform construction. Improve the policy system of digital inclusive finance, play an incentive and restraint role, and strengthen the construction of credit information-sharing platforms. Explore the intersection and integration of inclusive finance with advanced technologies such as artificial intelligence, big data, cloud computing, and blockchain, fully tap into the potential of data, and improve the technical system of digital inclusive finance. Clarify the different positions of large, medium, and small financial institutions, and guide various banking institutions to adhere to their positions and compete healthily.