The moral argument for more inclusive finance has always been easy to make. With better access to safe financial services, we can build a fairer world, in which no individual, household or small business is denied the resources to spur their growth and drive common prosperity.
Getting there is harder. Some 1.4bn adults remain unbanked and even more are vulnerable to the risks of borrowing through informal channels. Small businesses still face big problems getting bank loans. And the world is not on track to meet the 2030 deadline of the United Nations’ 17 Sustainable Development Goals (SDGs) – seven of which highlight financial inclusion as the key enabler.
But there’s room for optimism. More governments and companies are recognising both the moral imperative and the economic arguments for making inclusive finance a top priority. The issue now ranks high among the ESG (environmental, social and governance) factors that all financial service providers must consider.
China’s tech-powered progress over the past two decades stands out as the biggest success story in inclusive finance, and top of the pile is China Construction Bank (CCB).
The bank’s 2023 Semi-annual ESG Report detailed multiple steps undertaken, on “the Chinese path to modernisation”, to reach national development goals packed with the ESG concepts CCB is putting into practice. While its green finance services target carbon emissions, inclusive finance forms a major slice of CCB’s social change agenda.
Small is beautiful
UN member states adopted the SDGs in 2015 as a call to action for global peace and prosperity. In 2016, Beijing launched a five-year plan to develop financial inclusion by improving the availability, uptake and quality of financial products and services, with a focus on digital technology.
Since 2017, China’s large commercial banks successively established inclusive finance departments to support small companies, agriculture, poverty relief and entrepreneurship. The authorities required an increase in lending to micro and small enterprises (MSEs).
CCB rose to the challenge. As of the end of September 2023, its balance of loans for MSEs reached 2.99tn yuan, 30.6 per cent higher than a year earlier, and approximately 10 per cent of the national total.
Such customers matter. As the backbone of the world’s second-largest economy, MSEs have been the focus of government efforts throughout 2023 to spark a post-pandemic revival.
In October, China’s government targeted easier access to basic financial services for MSEs and the self-employed among 38 new measures to promote the “high-quality development” of inclusive finance over the next five years.
Mass finance for the people
Founded in the PRC’s early years as the People’s Construction Bank of China, CCB shortened its name in 1996. But it remains focused on the people, says chairman Tian Guoli. “We must adhere to the concept of ‘mass finance’, serving the majority, not just a few, and strive to be… pioneers empowering society,” Tian wrote in the bank’s Semi-annual ESG Report.
China’s banking regulator ranks CCB as the nation’s largest supplier of inclusive finance. This strategy raises questions about risk and thin margins, but the firm sees opportunity and says its inclusive finance non-performing loan ratio remains at a reasonable level, the overall asset quality is controllable and the bank is focused on sustainable development.
There’s plenty of room for growth, too, as many of China’s 170mn registered market entities are not yet covered by financial services. State-owned banks such as CCB spot a win-win: developing inclusive financial services is their national duty, and a smart play to capture the future market.
Cross that last mile
In just one generation, China has raced from being a cash-heavy society to almost cashless, thanks to fintech innovations that make it the world leader in digital payments. The new guidelines for inclusive finance call on financial institutions to deepen use of big data, artificial intelligence, blockchain and other tech to improve financial service models and bolster credit risk assessments.
Banks such as CCB already rely on fintech to expand the availability of financial services in lower-tier cities, underserved regions and rural areas. To widen access to loans, speed applications and lower costs, the bank uses tech to upgrade traditional credit risk assessments. The Huidongni app, a digital platform for MSEs and the self-employed, utilises biometric authentication technology and data models to identify customers and automate information acquisition.
“Rural revitalisation” is another priority. To reach the “last mile”, beyond its 14,000 branches, CCB operates more than 350,000 “Yunongtong” service points in villages. The Yunongtong app, designed to turn mobile phones into “new farm tools”, enabled 73bn yuan of loans to farmers as of the end of September 2023.
By 2029, a year ahead of the SDGs’ deadline, Beijing expects a high-quality inclusive finance system to be “basically established” and “common prosperity”, a campaign to narrow the wealth gap, to be elevated to a new level.
Stubborn obstacles will endure. The digital divide is real – the urban-rural one, too – and the financial system remains dominated by large state-owned banks who prefer lending to large state-owned companies. But China and its financial institutions are demonstrating the commitment and tech to close the financial inclusion gap and showcase the potential of ESG practices to combine economic and social benefits.
