By Mubing ZHOU
Vice Chairman of China Banking Regulatory Commission
Chinese government attaches great importance to the development of inclusive finance, which is seen as an important part of the national strategy. As Chinese banking sector regulator, the CBRC has been committed to guide and promote Chinese banking sector to establish the concept of inclusive finance and develop inclusive finance business. To do better in small and micro finance services to support small and micro enterprise development is key point of the development of inclusive financial. Hereinafter, I will share three points about obtained effectiveness, the challenges facing and the prospects of future by Chinese banking sector services on small and micro enterprise.
Firstly, the Chinese banking sector services on small and micro enterprises achieved remarkable results. Small and micro enterprises which as a new force for national economic development, is playing an irreplaceable role in economic prosperity, creating jobs, improving people's livelihood, promote innovation and so on. To do better, the CBRC will persist in a positive regulatory guidance to continually stimulate endogenous power of banking sector services on small and micro enterprises through a series of differentiated regulatory policies. By the end of 2014, the SME loans had achieved two "no less than" target of increment and growth rate for six consecutive years. By the end of June 2015, we also had achieved the CBRC's aims of “growth rate is not less than the average growth rate of all the loans, the number of loan households and loan availability rate is not lower than the level of the previous year”.
The total amount of small and micro enterprise loans rose steadily: the end of June, the nationwide balance of loans to small and micro enterprises was more than 22 trillion yuan, with an increase of over 15% of the previous year. Compared with the 2010 year-end level, an increase of 2 times in 5 years (at the end of 2010 the balance of loans is 7.5 trillion yuan);
Continuing to broaden the coverage of financial services: 11.51 million households have small and micro enterprise loans, which is representing an increase of nearly 9 percent a year earlier. Small and micro enterprise loans households accounted for more than 20% of all small and micro enterprises. The provinces (autonomous regions and municipalities) which cover small and micro enterprise financial service is more than 70%;
Credit sustainability improved significantly: National small businesses get loan rate is over 91%, which is 3 percentage points higher compared with the same period last year.
In promoting financial services for small and micro enterprises, I think there are five aspects of experiences and practices worth sharing with you:
1. To form a multi-wheel driving on financial services supply system. At present, China has basically formed a multi-level, diversified banking institutions organized system to provide matching financial services for different size, stage of development and financing capacity of small and micro enterprises. Large banks take advantage of outlets, personnel and technology, to offer more services basically, and enhance the professional level of service small and micro enterprises through the construction of franchise organizations. Small and medium banks are actively adding small and micro branches and community branches on grassroot level which is serving small and micro enterprises and community residents. Currently we have more than 5,000 sub-branches set up in the two types. Rural banks and other new rural financial institutions are in the steady development, which is counted as over 1300, they have effectively filled the gaps in rural and agriculture-related financial services to small and micro enterprises. Outside the traditional banking system, small loan companies, P2P marketplace lending companies and other new financial format are flourishing in stable and strong operating overall, making institutional carrier of financial services rich, and becoming an important supplement of alleviating the financing problems of small and micro enterprises.
2. To build an independent and efficient institutional mechanism. The special nature of the small and micro enterprises financial needs decided that banking sector must change the past when developed in expansion-oriented approach, and change the system of internal mechanisms comprehensively. CBRC is guiding the banking to establish and improve financial services for small and micro enterprises in "six mechanisms" such as interest rate risk pricing, independent accounting, approval, incentive and restraint mechanisms, staff training and default information bulletin and so on. CBRC is also putting forward "four single" principle such as separate credit plan, separate allocation of human resources and financial resources, separate customer identification and credit review and separate accounting for the franchise organizations for small and micro enterprises. Under regulatory guidelines, the banking sector has actively explored and established an effective mechanism for small and micro enterprise financial services system. For example, the system contains loan approval process which put scoring card as the core, risk management strategies which based on the "law of large numbers”, specifically small and micro business performance appraisal weights, the difference in tolerance of non-performing loans of small and micro enterprises, small and micro business employing disclaimer due diligence ways and so on. Institutional mechanism is built in the place to ensure that banks have the ability and power to serve small and micro enterprises deeply and continually.
3. To conduct a broad and flexible financial innovation. Innovative lets financial services maintain the vitality of the source. The CBRC encouraged banking sector to carry out flexible product and service innovation for characteristics of small and micro enterprises’ production and management and financing, and to change the situation about that high threshold of small and micro enterprise financial services, single contents and lack of efficiency in traditional model. As more and more banks will focus on small and micro enterprises as a strategic, financial innovations are emerging: the standardized operation of "credit factory" model can achieve scale effects; the Internet Big Data technologies can solve asymmetric information problems; intellectual property, equity and other new collateral ways can reduce costs for enhancing credit; mobile phone banking, Internet banking and other new terminals can improve service efficiency and improve experience of the small and micro enterprise financial services significantly. In particular, innovative and entrepreneurial small and micro enterprises who had the most prominent financing difficulties in the past, gained growing power to start with the support of bank innovative products and services, and they are becoming emerging power for implement national strategies of public starting up business.
4. To improve supporting systems of information and enhancing credit. Small and micro enterprises have financing difficulty, because they are lack of information and lack of credit. For solving the problem of information asymmetry, many local governments establish credit files for small and micro enterprises, provide credit rating services, build a public information platform, integrating interagency enterprise information and centralize inquiry and sharing. CBRC and the State Administration of Taxation jointly carry out the “banking and taxing interaction” activity in the country to help small and micro enterprises. Through the establishment of information docking channels, into the tax records of small and micro enterprises can be transformed to bank credit. At the same time, enhancing credit means for small and micro enterprises has been continuously enriched: The model of banking and insurance cooperate to service small and micro enterprises already has many pilot tests in the country; Financing guarantee industry in the financing of small and micro enterprises is playing an increasingly prominent role. At of the end of June, the balance of the national medium and small and micro enterprise financing guarantee loans was 1.24 trillion yuan. Some local governments also led the establishment of co-insurance, loans risk compensation fund, credit guarantee fund, and organize with banking, insurance, guarantees and other agencies to contribute for focusing on risk-sharing and compensation, and create "government bank enterprise", " government bank insurance", " government bank guarantee" and other modes of cooperation to further enhance ability of small and micro enterprises to get a loan.
5. To adhere to the work plans of focusing on both market principles and government promoting. To support development of small and micro enterprises by finance is the common cause of governments, businesses, community groups and financial institutions including banks by doing their duties best. From these years of practice, we realize that the fundamental standpoint of small and micro enterprises financial services is to follow the inherent logic in the market, to respect and play the subjective initiative of banking which is market main body, and to keep to the sustainable business road. Meanwhile, the government is playing a vital role in the market pilot and market supervisor. All levels of government emphasis more on small and micro enterprises continuously. They sequentially introduced a series of support and preferential policies on industry, taxation, business, land, finance, social insurance and other fields to promote the improvement of the market environment, to reduce transaction costs and to optimize resource allocation, with effectively promoting the quality and efficiency of small and micro business financial services. Only we insist on both the market principles and government promoting that we can make the small and micro business enterprise services more in-depth, more reliable and more long-term.
Secondly, small and micro enterprise financial services are facing new challenges under the new situation.
Chinese economic development has entered a new normal: "three overlays" has effective highlights; the slowdown in economic growth, under the background of industrial restructuring and upgrading, small and micro enterprises will accelerate the differentiation of groups, financing difficulties, financing expensive presents new features. Small and micro enterprise financial service is also facing new challenges.
1. The challenge is to adapt to complex market environment. Under the new situation, small and micro enterprises are rapid increasing of metabolism. It is the all-round challenge on banking’s capabilities of discovery, nurturing and managing clients that how to mining customer resources from mushroomed innovative small and micro enterprises, how to identify enterprises that are lack of competitiveness and backward production facilities, and do post-loan management timely. As more and more financial institutions join this "Blue Ocean" of small and micro enterprises, only to focus on establishing the right strategic position and understanding target customers clearly that the banking sector can take the initiative in the competition among the main bodies of diversified financial services. Meanwhile, the development and growth of high-quality small and micro enterprises must be accompanied by complex financing needs, and the traditional single credit business will be replaced by comprehensive and whole-process financial services. Construction of comprehensive service ability and same industries cooperation ability of the banking sector is also imminent.
2. The challenge is to take into both sustainable business and socially response. With the further promote of Chinese social interest rate reform and cash in bank shunted onto diversified access to social finance. Bank fund prices rose generally, and loan profit space was compressed. Under the objective pressures, for small and micro enterprises that are lack of derivative deposit and have weaker bargaining power, it is necessary to not only insist on the sustainable business principles of earning overlay risk, but also actively practice social responsibility for balancing the short-term interests and long-term strategy and determine a reasonable price mechanism to explore the integration development path of business profits target and social responsibility target. This is a major test for the banking sector’s continuing operation viability.
3. The challenge is to enhance risk management capability. In recent years, the impact of fluctuations in domestic and international economic environment coupled with their limited management capabilities, a number of small and micro enterprises have facing exacerbated financing difficulties. The credit risk continues to accumulate and outbreak, and non-performing loans balance and non-performance loan ratio are both rising. There is no denying that the bank sector has exposed risk management concept, system and technical problems that are worthy of attention and reflection in a series of defaults. Only reinforce internal control base and hold on the risk bottom line, small micro enterprise financial services can take root and pass onto the new generation.
4. The challenge is to continually strengthen the regulatory incentives. Since 2005, first small and micro business financial service regulatory guidance was issued, to promote small and micro enterprise financial service had been CBRC important mission always. For the decade, CBRC had been initiative to adapt to the economic and financial situation and continue to improve and perfect the differentiated regulatory policy framework. Facing new situation and new problem under new normal, we are actively studying how to maintain continuity of the policies when innovating supervision means, to handle the dialectical relationship of controlling risks and putting forward growth, to improve strength and precision of regulatory incentives, and to do more targeted guidance tilt to small and micro enterprise banking services.
5. The challenge is to optimize policy coordination mechanism. Small micro enterprise financial service is a complicated systematic project. It needs that taxation, judiciary, supervision and other co-related industry departments to take out effective policies to improve the financial ecology continually. It should be said that the existing types of support policies are running into the system, and the effect is also worthy of recognition. But the objective point of view, the interoperability and cohesion degree of policy still needs to be improved. Strengthening cross-sectoral coordination, focusing weaknesses, reinforcing information sharing and exerting joint force of policies are the next step that relevant departments should move.
Thirdly, it takes efforts to promote small and micro enterprise financial services to a new level.
Looking ahead, while the small and micro enterprise financial services are facing many difficulties and challenges, but under the national macro-strategy of inclusive finance, this carrier is very promising. The CBRC will continue to assume regulatory mission, further strengthen the guidance and support of the banking sector and promote small and micro enterprise financial services to achieve new progress in the new situation.
1. Kinds of support policies are necessary to be further forced precisely. We need put forth effort to exert "skillfully deflected the question" with policies as "baton" role in market behavior, and guide financial resources to invest and focus on small and micro enterprises those most need financial support in priority. Policy objectives should be clear, which means "Good steel needs to be used for the blade's edge". For example, the national enterprise type standard needs to be revised and improved as soon as possible, in order to reflect enterprises’ real ecologic as accurately as possible so that the enterprise who has real "body small and weak" can be focused to avoid too large policy coverage resulting in weakening the effectiveness. Policy instruments should be scientific and efficient for “more with less”. For example, in the delivery of financial resources, it will be more helpful to guide financial resources and social capital to invest in small and micro enterprises by levers such as venture investment driving and soft loans to improve aid efficiency to than by direct subsidies for sponsored enterprises.
2. New financial institutions and formats need to wring out further improvements. In recent years, private banks, small loan companies, P2P net loan companies and other new types of financial institutions and formats rapid rose to inject new vitality for small micro enterprise financial services. CBRC actively supports and encourages the new established private banks to explore and innovative characteristic and different business models such as "big deposit small loans", "small deposit small loans" and so on for improving and partitioning the matching degree of market financial needs and for enhancing financial support to small and micro enterprises and other weak links in economic development to serve the real economy better. Small loan companies and P2P net loan companies those are professional folk lenders and Internet credit platform is vivid expression of inclusiveness and diversity of inclusive finance. CBRC is studying to establish supervision system specifications of the two types of institutions. So they will be guided to service entities, standardize management, innovate scientifically and manage risk, and play their own advantages to compete effectively to provide multi-level financial services for various categories and various development stages of small and micro enterprises with assisting traditional banks.
3. Products and services need further innovation and change. "Science and technology are primary productive forces". It’s widely used that the Internet and other new technologies have greatly improved the efficiency of financial services, reduced costs and radically changed the small micro enterprise financial services’ "long tail products" look. Many banks have done a successful practice in this area. But fundamentally crack financing problems of small and micro enterprises, it is necessary to further deepen interconnecting between the banking and the "Internet +" to transform the "High-end atmospheric grade" cutting-edge technology into "Down to earth" products and services: in bank, to improve the business information system, we need do a meta-analysis of customer data which is accumulated in traditional handicraft by the individual loan officers in the past to deeply mine customer resources; outside, we need take full advantage of electronic business, credit systems and other types of credit information platforms to batch obtaining small and micro enterprise customer information and to timely capture the effective financing needs for expanding service coverage.
4. The service mode needs further co-ordinate integration. In terms of financing, we must focus on the development of complementary pattern between direct financing and indirect financing. Our country has set up strategic emerging industry venture capital fund and small and micro enterprise development fund, and I believe this will greatly promote the direct financing supply for small and micro enterprises. The key point is to promote innovative, entrepreneurial, growth-oriented small and micro enterprise development and to focus on the establishment of small, convenient and flexible financing mechanisms. The CBRC also encourages banks to explore Investment and loan linkage mode inside or outside with external venture investment institutions and to give targeted support of equity and debt financing for different stages of development of scientific and technological small and micro enterprises for fostering entrepreneurial ecosystem. In terms of risk-sharing and compensation, we need promote enterprises, government, banking and insurance, guarantees and other financial services institutions to participate in the "small and micro enterprise financial service community of destiny" model, and achieve the chain effect on enterprise accumulation, financial investment and financial resources to boost the development of small and micro enterprises together. We need improve the financing guarantee system with promoting the development of a number of financing guarantee institutions or funds those are mainly government-funded, norms operated, stronger, better reputed, influential as the main force of guarantee industry to service small and micro enterprises.
5. We need pay greater attention to the social responsibility of development concept. To do better in small and micro enterprise financial services is the demands by their own development of small and micro enterprises and the inevitable choice to achieve strategic transformation by Chinese banking sector, and also the common goal of government, media, academia, social organizations and all other aspects. Therefore, a development concept of sharing glorious mission and social responsibility should be established. Small and micro enterprises should have entrepreneurial spirit of honest management and go far stability, planning forward, take efforts to enhance the production, operation and management level, improve systems about management, finance, personnel and others, and create a "small but excellent", "small but strong" modern enterprise. Organizations like associations and chambers of commerce should actively play the role in industry about self-regulation and coordination and communication, enhance interaction between banks and enterprises, and promote the sound development of the industry. Commercial banks should co-ordinate economic and social benefits, strengthen awareness of social responsibility, and continue to increase the intensity of small micro enterprise services. Governments at all levels must clarify the responsibilities of their own positions, strengthen the system construction, industrial planning guidance and business training, completely advance administration according to law, and create a fair, open and healthy competitive market environment for small and micro enterprise financial services.
Chinese small and micro enterprise financial services have made gratifying achievements in active exploration. With relevant departments, the financial sector and the community, CBRC is willing to continue to make greater and more efforts to develop inclusive finance, support for small and micro enterprises, and enhance the welfare of the people.