As part of a series on “Local Perspectives on Financial Health”, Sarah Willis, MetLife Foundation and Julia Arnold, a Financial Inclusion Consultant, teamed up to take a closer look at improving access and usage of financial services and products in China.
MetLife Foundation’s goal is to improve financial inclusion across its footprint, which includes economically and geographically diverse markets. We seek to ensure that low- and moderate-income families in these markets can acquire and successfully use the products and services they need to build a better, more secure life. Yet the implementation of a global financial inclusion strategy is complex so we try to approach the challenges with innovative solutions that reach consumers in different ways.
In China, MetLife Foundation funds a wide range of financial inclusion initiatives, totaling $5.8 million USD in grants over 9 projects, reaching as far as the Sichuan province in the west of China to the Jiangsu province in the east. Our newest approach to improving the financial health of consumers is through harnessing the power of social entrepreneurs. To do so, we’ve teamed up with Verb to run a series of competitions, called Inclusion Plus. Beginning on May 19, we will invite organizations and companies across China that are focused on increasing access and use of financial services among lower-income populations to enter their products, services, or programs for the chance to win grant capital and mentoring from MetLife associates.
Economic Growth & a Rapid Decline in Poverty
Opening a national competition in China meant we needed to better understand the local landscape –meaning local nuances, market data, and government policies. We did this through desk research, interviews in China, and working with our MetLife colleagues in the region.
China’s rapid economic growth over the past 20 years has been the envy of the world. In addition, China’s rapid decline in poverty is a major success story. Since the 1980s, China’s poverty rate has fallen from 52% to around 11% in 2010.
In addition to that, China made significant strides toward financial inclusion, adding around 180 million adult bank account holders. There are several possible reasons for China’s recent accomplishments in financial inclusion:
- The government has made financial inclusion a focus of its five-year plan. An objective of the plan is to enhance financial inclusion via digital finance through the right regulatory conditions to support growth and encourage greater innovation.
- Recent policy shifts toward financial inclusion, such as banking reforms, have given way to new types of financial institutions, and a focus on uptake of bank accounts.
- New technology-driven solutions have also begun to emerge. These trends contribute to the fact that nearly 8 in 10 Chinese have a bank account.
Despite this terrific progress in the last few years, China still accounts for 12% of the world’s unbanked – i.e. 240 million people and millions more who are not using financial services optimally.
Three Opportunities to Expand and Improve Financial Services
To continue moving the needle on financial inclusion, we identified three inter-related opportunities for impact in the near term.
1. Mobile Technology: Often, just getting access to financial quality services is the problem. Luckily, mobile solutions are starting to help. With more than 1 billion accounts among the three mobile operators, China leads the world in mobile phone users. China is far ahead of many other countries in using digital/mobile payments and the rapid growth of mobile phones, with over 675 million unique users added in 2015. Like much of the developing world, mobile solutions present an affordable means to reach China’s unbanked and underserved populations. China’s growing FinTech industry – with accompanying regulation to support qualified lenders – holds part of the answer to two of the most marginalized groups: rural households and migrant workers.
2. Rural Inclusion: Though China has made impressive progress toward ensuring a majority of rural adults have a bank account, 234 million Chinese do not have bank accounts. Of these unbanked, 71% live in rural areas. This implies that the majority of rural residents only use cash, which is inefficient and costly. Plus, they’re unable to take advantage of working with banks or lenders. Not for profits have entered this space, including Accion, Positive Planet and Opportunity International, introducing formal borrowing to compete with the traditional informal lending and training programs to build local organizations’ capacity to provide clients with better services.
3. Migrant Inclusion: Internal migrant workers encounter difficulties accessing banking services due to China’s hukou system, which makes accessing employment protection, education, and health care difficult outside of one’s home area. In cities, migrants cannot always open a bank account or get a loan. In field interviews, Chinese entrepreneurs acknowledged the problem of this large population segment, yet there was no ready solution.
Today, China has the opportunity to be at the forefront in driving digital innovation in financial services – services that move beyond basic access to enhanced customer engagement. While China is relatively well-positioned on usage of accounts, especially savings, financial services providers can collectively adopt customer-centric product design and solve pain points in delivery, access, and utilization.
Through MetLife Foundation’s upcoming Inclusion Plus competition, we anticipate seeing even more innovations and ideas emerge, which will build on and amplify existing efforts around these three levers. We look forward to seeing continued growth and innovation in China, and ultimately the improvements consumers are able to make in their lives through the use of high quality financial services.