WEMONEY Research Lab:
The attention to financial health issues has been increasing both domestically and internationally. However, a unified definition of financial health has not yet been established. What does financial health mean, and what does it entail?
Duoguang Bei:
Currently, there is no universally recognized definition of financial health, and interpretations vary among institutions and scholars. Taking into account various perspectives, financial health generally includes the following aspects: adequate income and expense coverage: it refers to the ability of individuals to have their daily income sufficiently cover their expenses. Resilience to financial shocks. Progressive achievement of financial goals to attain a sound financial state.
As we can see, financial health means that individuals can balance their income and expenses, and exhibit good financial resilience, skills, and planning. They should be able to use financial tools such as savings, insurance, and credit to handle financial shocks from emergencies like major illnesses. Moreover, individuals are expected to adhere to honest financial practices, repay debts on schedule, make rational investments, and take a risk-based approach. They can reasonably leverage financial products and services to ensure basic financial security in the future.
WEMONEY Research Lab:
What's the relation between financial health and financial inclusion?
Duoguang Bei:
In terms of developmental stages, financial health represents an advanced form of inclusive finance. Inclusive finance primarily focuses on making sure financial services are accessible, while financial health places greater emphasis on making sure financial services are of good quality. It means that, in addition to accessible financial services, we should both encourage individuals' efforts and provide external support to continuously improve their financial well-being. This involves strengthening financial consumer education and protection, enhancing financial resilience, and building the capacity to withstand risks. Ultimately, the goal is to achieve financial well-being.
In the next five to ten years, China's inclusive finance will enter a stage of high-quality development. In the Report of Financial Inclusive in China released last year, we proposed the establishment of long-term mechanisms for capacity building. This year's research demonstrates that the goal of financial health happens to be an important indicator of high-quality development in financial inclusion. Financial health is a crucial aspect of capacity building in the development of an inclusive financial ecosystem.
WEMONEY Research Lab:
Do you have assessment data on the current financial health of small and micro enterprises (SMEs)?
Liming Hou:
based on our previous research, we collected 2349 valid questionnaires for SME's Financial Health project and prepared the SME Financial Health Report. The report evaluates whether the SME can maintain sound financial operations, effectively manage potential risks in business activities, and adequately prepare a meaningful lump sum for the current and anticipated future expenses. It reflects good day-to-day management, resilience, and growth potential. The report reveals that although the majority of SMEs scored between 60 and 80 points, with an overall average score of 68.27, more than one-third of them still grapple with financial unhealthiness. This has significant implications for the employment prospects of 180 million people.
WEMONEY Research Lab:
How can we address the financial health of SMEs?
Liming Hou:
In this regard, we have following five pieces of suggestions. First, priority should be given to the most pressing issue for them, which is cash flow. To alleviate the cash flow pressure caused by severe accounts receivable delays, it requires increased support from the government and financial institutions. Second, to promote the digital transformation of SMEs and enhance their cash flow management capabilities and day-to-day operations and management needs financial institutions to develop more convenient, lower-cost, and more adaptable solutions. In addition, the government should reduce the difficulty and barriers for SMEs and enhance public services in digital transformation.
Third, financial institutions should develop inclusive insurance products tailored to the risk characteristics and insurance needs of SMEs. These products should have high adaptability, cost-effectiveness, and strong coverage. The government can provide insurance education, strengthen consumer rights protection, and enhance industry regulation.
Fourth, financial institutions need to continuously optimize inclusive financial products and services, empowering SMEs through comprehensive financial services that go beyond credit. The government should increase policy support for vulnerable SMEs.
Fifth, raising awareness of financial health is crucial. This involves promoting the concept and indices of financial health and implementing them in practice.
WEMONEY Research Lab:
What role do financial institutions play in empowering the financial health of SMEs?
Liming Hou:
Whether from a financial business or digital technology perspective, financial service providers are true innovation pioneers. They also serve as the main channel for economic entities to access financial products and services. Therefore, it is essential for financial institutions to fully leverage their role as the main force and provide more targeted financial products and services for vulnerable individuals. Financial institutions should continue to strengthen the capacity for financial health and prioritize the improvement of customer financial health as one of the crucial business objectives. Integrating financial health with the risk management processes of financial institutions not only reflects the social responsibility of financial service providers but also serves as an effective path for them to enhance their competitiveness and differentiation. This approach contributes to a "win-win" result of stable operations for financial institutions and financial health for their customers.
All prospective financial service providers serving individuals, households, and businesses have the obligation and the potential to develop business models that align with their customers' financial health, including banks, insurers, providers of diverse investment tools, fintech firms, microfinance institutions, as well as financial planning and consulting service providers.
WEMONEY Research Lab:
What other suggestions do you have for the operation of SMEs?
Liming Hou:
Our research has revealed that SMEs not only encounter financial challenges but also require prompt solutions to their operational issues. Given the diverse levels, cycles, and industries in which they operate, relying solely on bank loans can only address a fraction of their challenges. Many issues require alternative channels, such as equity, insurance, or even blended finance methods, to be effectively resolved.
WEMONEY Research Lab:
What are the new requirements for inclusive finance at present?
Duoguang Bei:
The demand for inclusive finance has evolved from a focus on credit to comprehensive financial needs. In recent years, China has witnessed a significant campaign to address the challenges of the difficulties faced by enterprises in accessing affordable financing, with a focus on resolving financing issues. However, at the current stage, financial inclusion has shifted from providing financial services to improving their quality. This shift aligns with the financial health indicator we discussed earlier and corresponds to the requirements for the high-quality development of financial inclusion.
WEMONEY Research Lab:
How to establish an inclusive financial ecosystem?
Duoguang Bei:
We have always advocated for the establishment of an inclusive financial ecosystem. Inclusive finance goes beyond inclusive credit. The true essence of inclusive finance lies in building a multi-level and diversified ecosystem that caters to the diverse needs of SMEs at different levels. This is the fundamental purpose of inclusive finance.
Therefore, going forward, inclusive finance should prioritize establishing an ecosystem. This implies expanding beyond credit to include various financial sectors, such as insurance. Furthermore, capital markets such as the SME board, ChiNext board, and the STAR Market also serve as crucial financing platforms for SMEs and are integral to inclusive finance too. Moreover, even financial instruments like futures, which may not seem to be related to inclusive finance, are also part of the instruments of inclusive finance. For instance, in Yunnan where rubber cultivation is prevalent, volatile rubber prices may be a big risk to farmers' income. To hedge against such price fluctuations, a combination of insurance and futures can be used locally. The futures prices are linked to the corresponding rubber prices, so if the futures prices decline, compensation is provided to mitigate the impact on the farmers' income.
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