Postal Savings Bank of China: Inclusive Finance in Rural China
While China’s “big 4” commercial banks have dominated the country’s retail banking market in terms of customer numbers, their outreach in rural areas in terms of product range and service channels have been insufficient. Postal Savings Bank of China, established in 2007, has become the country’s fifth largest bank and has been filling the access to finance gap for farmers and micro-entrepreneurs in rural China.
In China, corporations and state-owned companies easily access financing, but most banks are reluctant to provide loans to farmers, micro-entrepreneurs and SMEs because they lack collateral. PSBC, however, having chosen to serve these customers, prioritizes sustainability over profit maximization and is China’s pioneer in financial inclusion and social responsibility.
When it comes to serving the rural population, PSBC has five distinct advantages over the “big 4” commercial banks.
First of all, PSBC has a dominant position in rural areas, with 39,707 outlets, over 70% of which are in towns and villages. On top of using existing post office facilities, PSBC set up “Sannong” financial service centres and microcredit advisory service centres. (The name means “three nong” in reference to agriculture, “nongye”, farmers, “nongmin”, and villages, “nongcun”.) These provide fast, high-quality service to microenterprises and farmers. PSBC can also better understand the needs of the rural population and expand its outreach in rural areas by taking advantage of the service centers’ proximity to local communities and their capacity to identify customers. To help rural people have convenient access to basic financial services, PSBC has also developed cash withdrawal service points in rural villages. In 2013, PSBC’s 108,700 service points handled over 6 million transactions amounting to almost RMB 1.5 billion (almost $245 million).
Second, PSBC has a strong commitment to developing microcredit businesses and supporting farmers’ businesses. Microcredit is PSBC’s long-term core business: as of 2013, it served over 7.5 million microcredit business beneficiaries, handling over 13 million transactions amounting to over RMB 811 billion (over $130 billion). To enhance innovation, PSBC has developed specialized farmer cooperative loans and related products, such as land ownership loans.
Third, PSBC is able to develop tailored microcredit products according to different characteristics of the agriculture industry. Loan officers are from the local communities they serve and can easily communicate with farmers in the local language and understand their needs and business plans.
Fourth, PSBC has gained specialized expertise in microcredit, innovating its business model to support the development of micro-enterprises. It scientifically designs products, establishes specialized institutions, promotes product innovation, emphasizes business model upgrades, and combines “finance” with “intelligence”. Since the low operating efficiency, high marketing cost, and difficult risk control can be a bottleneck for most of the commercial banks, PSBC has developed a specialized credit technology called “IT-Pads”(I-Industry Screen, T-Target Market, P-Project Constitution, A-Authorization, D-Development and S-Supervision), improving the effectiveness and business scale of microcredit in rural areas dramatically.
Finally, in 2009, PSBC established a strategy for training new talent. It identifies young, local graduates who are not only interested in and adept at microfinance, but who understand the situation in rural areas and the needs of farmers. Meanwhile, at PSBC headquarters in Beijing, a risk-control IT system monitors each loan disbursement.
PSBC has a crucial and strategic position in financial inclusion and has made provide more inclusive financial services. The experience of PSBC in inclusive finance illustrates the strong business case for providing low-cost financial services in rural areas. The new agricultural modernization and development of agri-businesses have provided a great opportunity for financial institutions to expand financial services to rural areas, which PSBC sees as a win-win situation for its business as well as for social progress.