Zhang Hui (fourth left), CEO of Puhui Finance Information Service Co. Ltd., takes part in a panel discussion at the Boao Review Finance Innovation Forum in Beijing on September 23 (COURTESY OF BOAO REVIEW)

Back in 2013 when Zhang Hui started a financial service company, he believed that such services should be targeted at more than just the elite—they should also benefit the majority of the population. That's why he named his company Puhui Finance, meaning "inclusive finance" in Chinese.

China's State Council, the cabinet, has also zeroed in on this concept by releasing a guideline in January asserting that an inclusive financial service system should be built in China by 2020.

The guideline states that more affordable and convenient financial services should be provided to small and micro businesses, farmers, low-income citizens, impoverished people and the elderly.

"Inclusive finance is putting the long-tail theory of economics into practice, providing financial services to 80 percent of the total population who've never enjoyed such services before. Thanks to the Internet, we are now able to meet their needs," Zhang, CEO of Puhui Finance Information Service Co. Ltd., told Beijing Review at the Boao Review Finance Innovation Forum held in Beijing on September 23.

The building of a more inclusive financial services market is progressing rapidly due to the support of the government and companies such as Zhang's.

Serving more people

First introduced to China in 2006, peer-to-peer (P2P) lending has been a popular—if not volatile—method used to expand the reach of financial services.

According to Wangdaizhijia.com, a website which logs Internet-based lending information, there were altogether 2,349 ongoing P2P lending platforms at the end of June in China, with total outstanding loans amounting to 621 billion yuan ($92.5 billion). Compared to the end of 2014, the two figures have surged by 49.1 percent and 499.7 percent, respectively.

However, with no market thresholds and no concrete operation standards, bankruptcies and the disappearances of P2P websites reminded people of the lurking risks of fraud and default. In September alone, 98 P2P platforms collapsed, according to Wangdaizhijia.com.

To strengthen supervision over the highly risky industry, regulators released a document on August 24 that detailed interim regulations on the amount of lending allowed, filing system procedures, and capital depository requirements in commercial banks. According to the regulations, P2P lending platforms are information intermediaries and they are forbidden from establishing their own capital pools or offering guarantee services to lenders.

After a long period free of regulations, China's P2P lending industry is now overhauling its practices to meet the government's requirements. Statistics from Wangdaizhijia.com have shown the effect of the new guidelines—as of the end of September, the number of P2P platforms in operation slumped to 2,202 from 2,235 in August.

Zhang told Beijing Review that those regulations have little impact on his company.

" We focus on micro-lending, so the limitations on the lending amount will not influence us; traditional financial institutions are offering large sums of loans to businesses and individuals, while we are focused on meeting the needs of a previously neglected part of the market," said Zhang.

On the upcoming transformation of the industry, Zhang said that the core competitiveness of his company lies in technology.

"The key to survive lies in sticking to the regulations, never conducting fraud, and making more efforts on technology and innovation," Zhang said.

Zhang estimated that after the release of the guidelines, out of over 2,000 P2P platforms, only dozens would eventually remain.

The new trend

China, a country with a tradition of saving and full of cash-strapped businesses, has made great efforts to lead in terms of innovation, especially in the finance sector.

According to data from Wangdaizhijia.com, the total turnover of China's burgeoning Internet finance sector reached 842.2 billion yuan ($125.45 billion) in the first half of 2016.

Nonetheless, with the rise of fintech (finance plus technology), the investment market is switching from Internet finance to fintech.

Founded in June, Xuanji Intelligent Technology Co. Ltd. is now applying big data technology, cloud computing, and artificial intelligence to its financial services.

Zheng Yudonmg, CEO of Xuanji, told Beijing Review at the Boao Review Finance Innovation Forum that fintech is an extension of traditional financial services.

Xuanji deems Robo-Advisory services—online automated and algorithm-based advice—as a supplement to conventional investment counseling. In Zheng's opinion, applying digital capital allocation systems such as these Robo-advisers to financial institutions will help overcome the defects of manpower and make best use of all resources.

"I worked in Citi Bank and served only high net worth individuals. Now Xuanji serves more people with the help of technology. The core of Xuanji and traditional financial institutions stays unchanged and Xuanji is helping them do it at lower costs and higher productivity."

A look ahead

Financial inclusion has also played an important role in global efforts to revamp fiscal measures. At the Group of 20 Summit held on September 4-5, in Hangzhou, world leaders endorsed the G20 High-Level Principles for Digital Financial Inclusion. They also endorsed an updated version of the G20 Financial Inclusion Indicators, which focused on digital financial services, and the Implementation Framework of the G20 Action Plan on SME (small and medium-sized enterprise) Financing.

Furthermore, in the Hangzhou Action Plan launched at the summit, G20 leaders explicitly recognized the critical importance of financial inclusion in empowering the poor. G20 Leaders committed themselves to taking "concrete actions" recommended by the Global Partnership for Financial Inclusion to promote digital financial inclusion, and help low-income developing countries to reach the "last mile" of excluded and under-served groups within this framework.

The topic was also discussed at the forum, wherein Li Dongrong, President of the National Internet Finance Association of China, pointed out the importance of developing digital inclusive finance in China.

"Seeking to unleash the potential of digital services for financial inclusion, G20 Leaders encouraged countries to devise their broader financial inclusion plans. Therefore, we can foresee that the development of inclusive finance will become a phenomenon worldwide," Li predicted.

"Digital inclusive finance in China has played a positive role in serving the needs of SMEs and encouraging people to start businesses and innovate," said Li. "But as it is still in the initial stage of development, in the future the industry will carry out innovations under government regulations to elevate the standards of services and inclusiveness."

Professor Li Yang, Director of the National Finance Development Laboratory, agreed with Li Dongrong, and he elaborated on building a new system of inclusive finance accessible to the entire target population.

"The economy is changing, finance is changing, and technology is transforming finance, but we should never forget that our starting point is to serve people's needs," Li Yang said at the forum.

Wu Xiaoqiu, a professor of economics at Renmin University of China, said that the government should be cautious when releasing regulations.

"The drafting of regulation principles for Internet finance services, such as P2P lending and crowdfunding, should be based on systematic and in-depth research on the industry," Wu said.

Copyedited by Bryan Michael Galvan

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