[Editor’s Note: This is a post from Sherry Zhang who is the latest member of the Lend Academy and LendIt teams. Sherry is based in China and previously covered the Chinese fintech market. She is helping us craft our LangDi Fintech agenda but you will also see her contribute here on Lend Academy to give us additional insight into the Chinese market.]
A brief history of financial inclusion in China
In June 2012, then Chairman Hu Jintao mentioned financial inclusion at G20 summit in Mexico. This was the first time a top Chinese leader mentioned “financial inclusion” in a public speech.
In Nov 2013, the Party’s central committee approved an important document entitled “Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform”. The document made it clear that China “will develop inclusive finance.”
In Jan 2015, CBRC established a financial inclusion department under the committee to oversee micro-finance, micro-loans, P2P lending, and issues of agriculture, farmer and rural area.
In Jan 2016, the State Council issued a circular and made a five-year plan (the Plan) to develop the country’s inclusive finance. The goal of the Plan is to set an inclusive finance system that is in coordination with the construction of a moderately prosperous society by 2020 and satisfies people’s need for financial services.
This research will focus on three case studies in the financial inclusion market: CFPA MicroFinance, Ant Financial, and CreditEase.
Case study 1: CFPA MicroFinance
CFPA Microfinance is one of China’s largest microfinance players:
- As of Dec 2016, CFPA Microfinance currently has branches in 229 counties and 18 provinces throughout China, and 85% of the branches are located in areas designated by the Central or Local Governments as poverty stricken counties.
- As of Nov 2016, CFPA Microfinance has disbursed loans valued at RMB CNY 18.4 billion ($2.7 billion) to 1.61 million clients, with average loan size of CNY 11,000 ($1,620). 62% of all loans have been deployed for the purpose of raising livestock, breeding fish and farming and etc.
- Approximately 3 million low-income villagers have received microloans from CFPA Microfinance for improving their livelihood and raising local production.
CFPA Microfinance’s largest shareholder, China Foundation for Poverty Alleviation (CFPA), was established in 1989. CFPA was one of the first non-profit organizations in China. International Finance Corporation (IFC) became acquainted with the foundation in 2007, and suggested that it make its microfinance business an independent business.
In November 2008, CFPA Microfinance Co. was established. In 2010, Sequoia China Capital and IFC made equity investments in CFPA Microfinance. After the investments, the CFPA’s ownership in CPFA Microfinance was reduced from 100% to 61%.
In Dec 2016, Ant Financial, IFC and High Impact Capital Advisors announced another investment in CFPA Microfinance. After that, Ant became the second-largest shareholder after CFPA.
A report by IFC (2012) said that, IFC helped CFPA Microfinance in terms of corporate governance, IT systems, HR, risk management, so CFPA Microfinance has achieved both business performance and social development:
- CFPA Microfinance now ranks among the top microfinance institutions in China in terms of profitability, asset quality, operating efficiency, and (low) average loan size.
- 91% of all CFPA Microfinance clients are women
- At least 80% of CFPA Microfinance clients would not have been able to borrow from anywhere else, according to a survey by the China Agriculture University and China Academy of Social Sciences
- 49 out of the 53 CFPA Microfinance operating outlets are in China’s Nationally Designated Poverty Countries, the poorest areas in the country.