OREANDA-NEWS. December 17, 2013. By Zheng Zhijie, President of China Development Bank

What is financial inclusion?

The "Decision of the CPC Central Committee on Several Major Issues Concerning the Comprehensive Deepening of Reforms" adopted at the Third Plenary Session of the 18th CPC Central Committee stressed the need to regard the promotion of social justice and the improvement of the people's well-being as both the means and the ends for the comprehensive deepening of reforms. It also called for the development of financial inclusion, mentioned for the first time in a document of a CPC Central Committee plenary meeting.

This is a new requirement put forward by the CPC Central Committee for the financial industry. The financial industry must earnestly implement the spirit of the central leadership, actively build an inclusive financial system with equal rights to financing for everyone, protect and improve the people's livelihood, and promote the development of social justice.

Financial inclusion has become an important means of promoting social justice in the world. Financial inclusion, also known as inclusive finance, was first proposed by the United Nations in 2005. Financial inclusion emphasizes using increased policy support and enhanced market mechanism to continually improve the coverage and availability of financial services to enable remote and poverty areas, small and micro enterprises, and individuals with low income to obtain affordable, convenient, and efficient financial services. This concept originated in Italy in the 15th century and became popular in Europe and Japan in the 19th century. In the 1990s, financial inclusion gave rise to a global wave of poverty alleviation through microfinance. In 2006, Professor Muhammad Yunus of Bangladesh and his Grameen Bank won the Nobel Peace Prize. Professor Yunus said, "Financing is a basic human right. Microfinance can at least lift e a lot of poor people out of poverty and reduce poverty." This has provided a new idea and a new model for global poverty alleviation.

After visiting microfinance institutions abroad -- including financial institutions, NGOs, community cooperative banks, rural banks, and wholesale funds, we realized that microfinance has become an important means for eradicating poverty, promoting development, and achieving financial inclusion. The development of microfinance in various countries is all based on the concept of financial inclusion, and strives to extend financial services to grassroots people so that everyone who is willing and able will have opportunities to enjoy equal access to financing in order to improve the quality of their production and living and better achieve their own development. The government will, for its part, formulate preferential policies in enhancing the guarantee structure, market entry, tax relief, and wholesale financing, support the building of a system of financing for small and micro enterprises, and encourage large banks to carry out microfinance business. At present, there are nearly 10,000 microfinance institutions in the world that are exploring financial inclusion. They cover over 500 million customers or 17% of the 3 billion poor or low-income population of the world, greatly promoting social justice.

At present, China is in an important period of strategic opportunities for China's economic and social development, but there are still outstanding issues of unbalanced, uncoordinated, and unsustainable development, a large gap in income distribution, imbalance in urban and rural regional development, and a significant increase in social conflicts. Financial inclusion provides all sectors of the society with opportunities and ways to enjoy modern financial services, so it has major significance for establishing social justice and security system with the main content of equal rights, equal opportunities, and fair rules.

The core of the advocacy of financial inclusion is "equal rights to financing for everyone". Rights to financing are not only essential to pushing forward social development but also indispensable help in improving personal living environment, access to the dignity of life, and achieving individual self development. In essence, equal access to financing for everyone is not only the core content of equal rights but also an important part of equal opportunities. First, it is conducive to the protection of individual survival and development. Financial inclusion helps low-income communities obtain equal opportunities for and rights to financing, reducing their life's pressures and improving their standards of living in the short term and providing them with opportunities for sharing the fruits of economic development in the long term. Second, it is conducive to the protection of equal access to public services for individuals.

Through pushing forward development in education, housing, healthcare, and other areas, financial inclusion helps the government improve its capacity to supply public services, and enables more people to enjoy more and better public resources in education, housing, health care, and pension benefits. Third, it is conducive to expanding employment and entrepreneurship and increasing the income of urban and rural residents. Small and micro enterprises are the main carrier and platform for employment and entrepreneurship. Financial inclusion focuses on solving the financing problems of small and micro enterprises, so it is able to effectively improve the income level of low-income communities, holding major significance for narrowing the wealth gap and promoting social harmony.

China Development Bank (CDB) continually explores financial inclusion and has made remarkable achievements. CDB began to collaborate with the World Bank and Germany's KfW in 2003 in providing microfinance, launched student loan business in 2004, and supported shantytown revamping in Liaoning in 2005, continually expanding its practice in financial inclusion. CDB has been trying to ensure "equal rights to financing for everyone". It started with issues of the most direct and most practical benefits that the masses are most concerned about, and has focused on building an inclusive financial system, explored and enhanced the model and means of financial inclusion, and made diligent efforts to make a financial service net that protects the people's livelihood. After nearly a decade of development, CDB has gradually become an important financial force in advancing social justice.

What is the role of financial inclusion?
1) To improve the corporate credit environment, explore effective models for supporting the development of small and micro enterprises, and promote equal employment.
2) Employment is the essence of people's livelihood and a basis for achieving social justice. In 2002, the issue of re-employment for people made redundant in SOE reforms became prominent while there was insufficient activity in investments in medium, small and micro enterprises, so China was faced with a grim employment situation. CDB put forward that, in lending to medium, small and micro enterprises, priority should be given to the grassroots and individual customers so as to expand coverage and ensure everyone has equal financing opportunities.

In 2003 CDB integrated international advanced microfinance technology with China's national conditions, explored a model of "four platforms and an association" (management platform, financing platform, guarantee platform, public disclosure platform, and credit association), solved retail issues with wholesale means, and solved a common problem for tens of thousands of households with a uniform, standard model. Currently the balance of CDB's lending to medium, small and micro enterprises has reached 2 trillion yuan, and the bank has made its efforts to alleviate the problems in employment and entrepreneurship and improve the credit environment of medium, small and micro enterprises by cumulatively supporting over 1.8 million medium, small and micro enterprises, individual business owners, and farmers with more than 4.87 million jobs created.

2) To crack the problem of student loans, support the development of education, and promote equal education.

China launched student loans nationwide in 2000 and decided on participating financial institutions through bidding. However, due to reasons of system and mechanisms, business development was slow, and in some places no bidders were found for college student loans in 2004. Under those circumstances, CDB designed a new student loan model with the provincial educational loan centers and the college support centers as platforms and risk compensation to reward repayment as an incentive and restriction mechanism, effectively cracking the problem for a wholesale bank to handle student loans. Currently, CDB has made cumulative student loans of 42.6 billion yuan and set up a national student loan support system covering 25 provinces and municipalities, 1,928 districts and counties, and 2,689 institutions of higher learning, benefiting nearly 10 million needy students. In addition, CDB has also actively explored the model of "provincial-level promotion, city-level lending, and entrusted construction" by lending 27 billion yuan in supporting the construction of safe school buildings and renovation of decrepit secondary and primary school buildings in Qinghai, Shanxi, Anhui, and Inner Mongolia, newly building or renovating 49.75 million square meters of secondary and primary school buildings and benefiting about 4.5 million secondary and primary students.

3) To support the construction of welfare housing, vigorously support low-income family housing construction, and promote equal housing.

"When will we have tens of thousands of mansions to shelter the nation's scholars and make them happy?" Home ownership is the "Chinese Dream" of the ordinary folks for thousands of years. In 2004, Liaoning designated the shantytown revamping project as the province's "Project No.1" for supporting its program of revamping the old industrial bases. The shantytown revamping project covered an area of 20 million square meters involving more than 2 million people. With a funding gap of 18.7 billion yuan, shantytown residents could not afford it, government finances could not cover it all, and it was hard for commercial funds to come in. Based on the principle of "government-led efforts to offer timely support" and following the model of "government-led, market-operated, and public participation", CDB made an initial loan of 3 billion yuan to help 1.2 million shantytown residents in 11 cities of Liaoning move from decrepit shantytowns into spacious and bright buildings ahead of schedule, ushering in a new phase of financial support for welfare housing construction. Afterward, CDB quickly applied the Liaoning experience nationwide and used financing to help push forward efforts by various localities to solve the problem of concentrated poverty populations. In 2011 the State Council called for the construction of 36 million welfare housing units nationwide during the 12th Five-Year Plan period. Responding actively to the call, CDB increased its welfare housing loans for two years in a row with a balance of over 100 billion yuan and over 50% market share. This year the 14th executive meeting of the State Council also called for "giving play to the role of development banks in offering credit support for shantytown revamping". Up to now, CDB has issued cumulative welfare housing loans of 661.2 billion yuan (of which shantytown revamping loans of 363.4 billion yuan with a current balance of 258.8 billion yuan), benefiting 7.18 million households and 22.52 million low-income people.

4) To achieve blood-production poverty alleviation and development, increase development-oriented poverty alleviation efforts, and promote equal survival and development.

Poverty alleviation and development have an impact on the party's governing base, on the long-term peace, order, and stability in the country, and on the overall situation of socialist modernization. Under the circumstances of limited increases in government funds for poverty alleviation and the tough task of poverty alleviation and development, CDB took the initiative to integrate financing with talent gathering, push forward various localities' formulation of planning for poverty alleviation and development and systematic financing, innovate the ways to use government funds for poverty alleviation, establish a wholesale financing mechanism of "government-led, mechanism-building, unified lending, poverty-alleviation discounts, joint public efforts, and benefits for farmers", and achieve the transition from blood-transfusion poverty alleviation to blood-production poverty alleviation. Up to now, CDB has issued loans of 1.5 trillion yuan to support the development of national and provincial poverty counties with a current loan balance of 822.2 billion yuan. These loans have greatly improved and developed transportation, housing, education, healthcare, agriculture, forestry, and water conservancy in the poverty areas. Through a decade of difficult explorations, CDB has accumulated experience in financial inclusion. First, to adhere to planning ahead and scientifically grasping the direction of financing support. Second, to adhere to the socialization of finance and continually enhancing the cooperative institutional system. Third, to adhere to deepening system and mechanism building and solidifying the development foundation. Fourth, to adhere to wholesale and standardized ways and establish a sound financial product system. Fifth, to adhere to strengthening risk management and achieving sustainable development. In essence, this experience means to rely on the advantage of development financing between the government and the market to integrate government, public, bank, enterprise, and other resources, build and nurture healthy market players, build a credit structure, support the weak links in social development with market means, and create conditions for the market to play a decisive role in allocating resources.

How to build an inclusive financial system?

We must focus on better protecting and improving people's livelihood, promote social justice, deepen social structural reform, and let the people of the whole nation benefit more equitably from the fruits of development. The financial industry should implement the spirit of the plenary meeting, vigorously innovate service models, methods and products, strive to build an inclusive financial system offering equal rights to financing for everyone, and truly deliver the fruits of development and the bonus of reform to the masses of the people. That is precisely a concrete action for implementing the party's mass line. We must establish a diversified inclusive financial system. The key to achieving equal rights to financing for everyone is to establish a diversified, market-oriented, and sustainable inclusive financial system, and to extend efficient, convenient, and equitable financial services to everyone who needs them.

We should encourage financial institutions to step up their support for grassroots people's livelihood projects. We should offer guidance in macroeconomic policies, encourage large commercial banks, policy banks, city banks, rural banks, and other financial institutions to increase credit supply for "three rural", small and micro enterprises, education, employment and entrepreneurship, and other areas, and push forward the extension of financial institutions to less developed regions. We must nurture and develop new inclusive financial institutions. We should suitably lower the entry barriers for the provision of grassroots financial services in qualifications, financing percentage, cross-regional business, and other aspects, and support smaller financial institutions in meeting the financing needs of poverty populations and underprivileged groups. We must vigorously develop diversified financing methods, standardize and develop private-sector lending, and widen diversified financing channels for small and micro enterprises.

We must strengthen policy guidance and support. Government departments should launch relevant preferential policies in financing support, fiscal discounting, tax relief, technological innovation, education and training, human resources, and other areas, and support the development of financial inclusion. We should expand, with market means, the coverage and penetration of financial institutions' support for people's livelihood and development, and maintain the sustainability of the development of financial inclusion.

We must improve the service level of financial inclusion. We should consider establishing a social financial service platform for the development of small and micro enterprises, push forward the establishment of a social financial service system for small and micro enterprises that is mutually complementary and favors cooperation for a win-win outcome, each performing its own functions, and fair competition. We should develop online finance and other new financial service methods. We should give full play to the fast, efficient, and low-cost features of online finance, and improve the efficiency of financial services while lowering the thresholds for financial services. We should step up the promotion of the wholesale financing model for small and micro enterprises, extend wholesale and standardized financial products to employment, education, poverty alleviation and development, and other areas that have an impact on people's immediate vital interests, and expand the coverage of financial services. We should innovate specialty products and, based on the different characteristics in various areas of financial inclusion, design comprehensive financial products covering lending, insurance, funds, trusts, leasing, and other means of financing.

We must create a favorable credit environment for the development of financial inclusion. Credit is the foundation for financial inclusion, so building a sound credit guarantee system is crucial to the development of financial inclusion. We should establish a credit evaluation system for medium, small and micro enterprises as well as farmers. We should strengthen credit information collection and updating for medium, small and micro enterprises, build a good mechanism for rewarding credibility and punishing the lack of it, and comprehensively improve the credit environment for medium, small and micro enterprises. We should use various mass organizations to collect credit information about farmers through multiple channels, and actively carry out credit ratings for farmers.

We must actively push forward the building of a credit system. We should strengthen the public disclosure of credit information, promote information sharing between local credit information and the information systems of judicial, industry and commerce, taxation, customs, environmental protection, and other departments, and achieve public supervision for the credit management for small and micro enterprises and individuals. We must enhance the credit guarantee system. We should encourage guarantee agencies to provide guarantees for micro-lending companies, non-profit microfinance institutions, farmers' mutual cooperatives, and so on. We should enhance the compensation mechanism for guarantee agencies and guarantee funds, help private capital enter the guarantee business, and cultivate a sound social credit guarantee market.

Financial inclusion is a popular project that has a bearing on tens of thousands of households, and it requires the joint efforts of the whole society. CDB will continue to adhere to the concept of equal rights to financing for everyone, act from the perspective of achieving, safeguarding, and developing the fundamental interests of the broadest people, adhere to the financial socialization method of "public benefit, public participation, and public supervision", continue to solve retail issues with wholesale means, solve common problems for the tens of thousands of households with a uniform, standard model, and provide inclusive financial services for the masses of the people so as to help the people of the whole nation benefit more equitably from the fruits of development.