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Vice Chairman Zhou’s Keynote Speech at the Roundtable on Ecosystem Building and Digital Development of Financial Inclusion in Asia
Origin:Boao Forum for Asia      Time:2020-07-03 10:43:55    Views:159

(July 2, 2020)

 

Distinguished guests, dear friends,

Ladies and gentlemen,

Good afternoon! And for some participants, I should say, good morning!

Today, I am very pleased to attend the meeting, together with colleagues and friends from central banks and regulatory agencies, from international organizations, and from the industry and academia, to discuss the ecosystem building and digital development of financial inclusion in Asia. Since the beginning of this century, governments in many countries have attached increasing importance to the role of financial inclusion in serving the real economy, alleviating poverty and protecting vulnerable groups. Over the past decade, the G20 Leaders’ Summits have put forward a number of important global initiatives on financial inclusion, and Asian countries have accumulated many valuable experiences on this frontier.

Against the severe impact of the COVID-19 pandemic on global economy, many countries have adopted targeted measures such as special assistance and paycheck protection programs in order to provide preferential loans to the small and medium-sized enterprises and secure employment. Furthermore, digital financial inclusion has been playing a key role in providing fast and contact-free financial services. I am expecting intriguing cases and insightful discussions brought by our distinguished guests at today's roundtable.

In China, since the reform and opening up, China's SMEs have been a vital force in promoting China's economic development, market prosperity and social stability. In 2019, China’s SMEs, including micro enterprises and self-employees, accounted for over 90% of market entities, contributing to more than 80% of  employment, over 70% of patented inventions, more than 60% of GDP and over 50% of taxation. However, as in other countries, small-sized enterprises have been continuously confronted with limited availability and high cost of financing. For one thing, this may stem from the general features of micro - and small-sized enterprises themselves, such as high operational risk, weak competitiveness and insufficient creditworthiness; for another, it is also closely related to the entire financial ecology, encompassing business environment and financial infrastructure.

Over the years, China has improved the financial inclusion ecosystem through continuous institutional reforms. Great efforts have been made in reforming rural credit cooperatives, enhancing their ability to serve rural micro - and small-sized enterprises and households, and building diversified and widely-covered financial inclusion institutional system, in which large, medium and small financial institutions all participate. At the same time, China has ramped up its efforts to reinforce financial infrastructure, to adopt technological innovation to develop digital financial inclusion , and to strengthen international exchanges and cooperation. In 2015, China put forward the first national five-year plan for financial inclusion development.

Today, I would like to share with you some reflections on China’s financial inclusion practice and development. “Financial Inclusion” or “Inclusive Finance” are newly developed terms and have only become popular in recent years. However, similar and related practices and explorations have existed for many years under different names. Like the whole world, China attaches great importance to financial inclusion, and has achieved great accomplishments yet faced mounting challenges, with experiences learned and lessons taken. Attentive reviews and generalizations are much needed. Many experts and scholars have published their views and papers in this field. Now I would like to add some of my reflections.

First, the society as a whole should strengthen and deepen its understanding of financial inclusion and promote its development. The first step is to form clear concepts, including the objectives, organizational forms, tools, performance measurements and policy supports. It is imperative to understand the relationships between the financial industry and non-financial real sector. It is also important to establish a serving, co-existing, and all-win ecology. The establishment and refinement of statistical and indicator systems are crucial not only for performance measurements but also for cross-country and cross-regional comparisons, to learn the comparative advantages and disadvantages, and recognize the room for development and improvement. At the same time, objective analysis and stocktaking of development paths and experiences and lessons is also beneficial.

Second, financial institutions originating from and serving grassroots and their organizational forms should be financially healthy, sustainable, continuously power enhancing, and down to earth. We all know that these can be manifested by many indicators like capital adequacy, balance sheet, financial tools, abilities to identify and absorb risks, etc. Proper mechanism to attract and sustain talents is also a heavy-weighted element. In short, with no financial institutions operating healthily and viably, there would not be large-quantity, wide-range, fine-quality and sustainable financial services. 

Third, effective incentive mechanisms are required for financial inclusion. Well targeted (instead of excessive) fiscal and structural financial policies and some social policies with specific orientation are necessary. Clear signals are in great need that inclusive financial businesses are no less attractive than the high-end financial business lines, and not in a lower grade. The key of incentives does not lie in subsidies, but in mechanisms, such as deposit insurance mechanisms that benefit smaller institutions, and insurance products and pricing mechanisms to absorb risks including climate change and epidemics.

Fourth, streamline and effective corporate governance needs to be established and maintained. Definitely, corporate governance lays the foundation for financial institutions’ soundness and sustainability. Most developing countries cannot mainly count on public finance to invest in financial inclusion institutions. Attracting diversified social capital is an inevitable choice. This brings in multiple benefits together with complex business motivations. Thus the governance and internal control of financial institutions needs to be improved continuously, combined with appropriate and effective supervision and public oversight. There have been a large number of instances of financial institutional failure at least partly due to poor corporate governance.

Fifth, continuous improvement in supervision and index systems is required. Although the regulatory and supervisory principles for financial inclusion institutions and/or their businesses are not necessarily different to those for regular financial institutions and/or their businesses, we should pay particular attention to the unique business models, health and risks for financial inclusion. Especially, we need to identify the grassroots data for financial inclusion and use it as the basis for incentive mechanisms. Also, we cannot overlook the complexity of supervision, even for financial inclusion business in big- and medium- sized financial institutions.

Sixth, we need to minimize distortions and avoid moral hazards. In developing countries and transitional economies, there exist much initial distortions and in-progress distortions, which require correction by reform and opening-up, especially price rationalization and financial market development. Such distortions create arbitrage opportunities. If arbitrage makes greater profits than normal operations, then most institutions will find it hard to resist and regulators will feel hard-pressed. Some social policies are verbally correct when said, but may actually enlarge the distortions and cause adverse selection problems.

Next, I will briefly talk about technological innovation and the development of China's digital financial inclusion. We all know that, the financial industry has always been taking the lead in information technology adoption. It can be said that financial technology itself is a form of information technology. China has been actively promoting digitization of the financial industry and encouraging digital technology to empower the financial inclusion businesses. In 2016, the G20 Hangzhou Summit affirmed the development direction of digital financial inclusion. Commercial banks and other traditional financial institutions in China accelerated digital transformation. And fintech companies regarded inclusive financial services as an important business breaking point.

In the past, traditional financial inclusion services mainly focused on availability and cost of credits obtained by small and micro enterprises and households. But now, digital financial inclusion not only greatly extends the service radius of financial businesses, but also broadens the categories of the services to a much larger extent, from account opening, payments, deposits, wealth management to loans, insurance and even commodity futures trading. The basic and upgraded financial needs are all covered, and can almost be executed through mobile phones while staying at home. As people may know, the World Bank has been taking a panaromic view of all kinds of financial services when compiling the global financial inclusion index and indicators, rather than narrowly looking at credits obtained by small and micro enterprises and households.

Amidst social distancing caused by the Pandemic, digital financial inclusion has demonstrated strong advantages. Digital financial service providers can efficiently reach a broader range of long-tail clients and provide convenient services at low costs, without the reliance on physical branches. And by effectively reducing information asymmetry, it provides powerful tools to alleviate the financial difficulties of micro and small businesses and individuals. Financial service providers use big data, cloud computing and other technologies to help generate personal credit information, thus reduce dependence on regular collaterals such as real estate, and cut credit management costs of financial institutions. It is expected that, after the pandemic, clients will be more adapted to contact-free financial services, and their digitization will be further accelerated.

To promote the development of digital financial inclusion, countries need to further improve the construction of financial infrastructures, such as payment, credit information, and anti-money laundering systems and financial service technology standards. At the same time, countries and regions need to take great effort to narrow "digital gap”, so as to prevent those in the remote areas, the less educated, and the elderly from becoming disadvantaged groups and excluded from digital financial services, just because they can’t get access to or effectively use new technologies. This issue should not be overlooked especially during the pandemic. In addition, to develop digital financial inclusion, we must pay close attention to data security and privacy protection. It is important to strike a good balance between financial inclusiveness and security and privacy protection.

Due to time limit, I have to constrain myself from sharing more reflections. There are many real cases we can refer to and study on. I sincerely hope that we can take this opportunity to have in-depth discussion on financial inclusion, and learn and draw experiences from each other.

Thank you very much for your attention!

 

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