Banking & Finance

Free toothpaste, anyone?

New push to reach 60 million without bank access

Farmers on their way to the ATM

For most of the last decade the farmers of Fenxi County in Shanxi province have had no access to a bank. With no conventional financial services available, the villagers have resorted to raising dogs to guard their savings.

It wasn’t always this way. Back in 1999 there were 12 rural credit cooperatives that took farmers savings and made loans.

Unfortunately they didn’t do it very well. Yuan Donggui, a former employee of the Fenxi Rural Credit Cooperative, explains: “We were ordered to close because of disorderly management. This included the issuance of false certificates of deposit, illegal lending and purchases that couldn’t be accounted for.”

The 12 credit cooperatives ran up losses and were suspended by the authorities in 1999. They were finally abolished by the China Banking Regulatory Commission (CBRC) in 2005. But, as Yuan told the Economic Information Daily, the downside was that Fenxi’s 142,000 residents no longer had a bank – and had to resort to canine cash protection.

Fenxi is not alone in its predicament. According to newly released statistics from the CBRC, there are an estimated 60 million Chinese without access to banks or credit. The Economic Information Daily reckons Fenxi has an unfulfilled loan demand of Rmb500 million.

For most of this century the big state-owned banks have preferred to concentrate on a Hong Kong listing, rather than the countryside. But this is about to change. The CBRC has stepped in and promised a rollout of basic financial services to rural areas within three years. CBRC chairman, Liu Mingkang has said the drive will offer banking in 35,000 towns and townships (defined as an administrative area of around 20,000 people).

At the vanguard of this charge, obviously enough, is the Agricultural Bank of China (ABC), which recently returned to the banking wilderness of Fenxi County (with an outlet) and is making forays into other deserted rural areas.

The Economic Observer also reports that ABC has been experimenting with a new form of branch banking in Lujiagou Town in western China. The area – known throughout China as the ‘home of the potato’ – now sees a mobile banking vehicle turn up on the 7th, 17th and 27th of the month. It has an ATM machine and a telephone for making transfers.

Other pilot programmes have been initiated. For example, in Guangxi province the bank has been trying to teach farmers to use e-banking. No glitzy marketing here – free toothpaste is on offer to willing students.

Clearly, rural banking is not especially sophisticated. But some of ABC’s 440,000 staff worry about its viability, especially as the bank is expected to be listed next year.

Nevertheless the numbers suggest its rural push is a real one. By the end of September, ABC’s new loans to farmers and rural counties had risen by Rmb385.3 billion ($56.2 billion) and Rmb472.7 billion respectively.

Is it profitable business? ABC’s non-performing loan ratios for these groups were relatively high at 3.7% and 3.2%. That may alarm potential investors. As one Japanese investor told the Economic Observer: “I still think that the service ABC provides is policy-based, which for overseas investors is a risk. Whether or not I invest in ABC will depend on whether the Chinese government gives it subsidies to compensate for these services.”


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