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2009 | OriginalPaper | Buchkapitel

Combating Financial Exclusion in China: A Banking Regulatory Perspective

verfasst von : Yufeng Gong, Zhongfei Zhou

Erschienen in: China’s Emerging Financial Markets

Verlag: Springer US

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Abstract

The past 10 years have witnessed great achievements made by the Chinese government in enhancing disadvantaged people’s access to financial services. Without fundamental regulatory arrangements, however, no sustainable improvement would be achieved in combating financial inclusion in China. A banking regulatory structure being granted operational independence and accountability is helpful to establish an appropriate, facilitative, and incentive-compatible regulatory and legal environment for developing microfinance. In addition to the objectives of banking system stability and depositor protection, promoting financial inclusion should be incorporated into the regulatory objectives of a banking regulator, the result of which is that the banking regulator would more proactively take mandatory measures to fulfill the responsibility in this regard. Although there is debate as regards whether corporate social responsibility of banks is a statutory obligation, the imposition of the duty of increasing financial inclusion on banks in the form of law would contribute greatly to facilitating more access of disadvantaged people to financial services. Bearing in mind the differences between microfinance providers and general commercial banks, the authors argue that prudential regulation aiming at preventing systemic risks and protecting depositors should not be applied to microfinance providers. A tiered, cost-effective regulatory framework taking into account the special features and risk profile of microfinance should be put in place for microfinance providers to balance promotional and prudential objectives.

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Vorheriges Kapitel Financial Institutions’ Lending and Real Estate Property Prices in China

Nächstes Kapitel The Chinese Bond Market: Historical Lessons, Present Challenges, and Future Perspectives

CBRC, Distribution Map, http://bankmap.cbrc.gov.cn/bank (accessed February 18, 2008).

Wang Zhijun, Financial Exclusion: Britain’s Experiences, Study on World Economy (2007), vol. 2, at 68.

Du Xiaoshan, The Development and Polices of Microfinance in China (manuscript, March 2006).

The constraints include lack of regulations and rules, government’s inconsistent policies, interest rate control, unequal competition between microfinance institutions, and undeveloped credit culture. See id.

Access exclusion means the restriction of access through the processes of risk assessment. Condition exclusion means where the conditions attached to financial products make them inappropriate for the needs of some people. Price exclusion means where some people can only gain access to financial products at prices they cannot afford. Marketing exclusion means whereby some people are effectively excluded by target marketing and sales. Self-exclusion means that people may decide that there is little point applying for a financial product because they believe they would be refused. See Kenneth M. Amaeshi, Financial Exclusion, Financial Institutions and Corporate Social Responsibility: A Developing Country Perspective (manuscript, 2006), at 4.

The 1999 Provisions on Farmer Household Micro-loans were abolished by the PBOC and CBRC jointly in December 2004.

The 2001 Guidelines on Farmer Household Micro-loans have been implemented jointly by the PBOC and the CBRC since January 2007.

In July 2007, the CBRC announced that the 2000 Guidelines on Group-guaranteed Loans were not applicable.

With the implementation of the CBRC’s Guidance on Credit Extensions of Banks to Small Enterprises in July 2007, the Guidelines on Small Enterprise Loans of Banks were abolished.

Measures on Administrative Licensing of Cooperatives, art. 6(2).

Id. art. 8.

Rural Credit Cooperative Provisions, art. 25(1). As a matter of fact, the Banking Supervision Law regards rural credit cooperative as a financial institution taking deposit from the public. See Banking Supervision Law, art. 2.

Rural Credit Cooperative Provisions, art. 27.

Rural Commercial Bank Provisions, art. 2.

Rural Cooperative Bank Provisions, art. 48.

Id. Under the Measures on Administrative Licensing of Cooperatives, one of the requirements for establishing a rural cooperative bank is that the general shareholder meeting has determined the percentage and size of loans issued to farmers, agriculture and rural economic development. See Measures on Administrative Licensing of Cooperatives, art. 54(11).

Rural Cooperative Bank Provisions, art. 48.

Temporary Provisions on Administration of Village Banks, art. 2.

Commercial Banking Law, art. 13.

Rural Cooperative Bank Provisions, art. 9(3).

Temporary Provisions on Administration of Village Banks, art. 8(3).

Id. art 25.

Id. art. 5.

Id. art. 39.

A village bank’s capital adequacy must be not less than 8% at any time. Id. art. 42.

The loan loss provisioning ratio of a village bank must be not less than 100%. Id.

Loans issued by a village bank to a single borrower must not exceed 5% of the bank’s net capital, and credit extensions to a single group borrower must not exceed 10% of the bank’s net capital. Id. art. 41.

Id. art. 51(2).

Temporary Provisions on Administration of Loan Corporations, art. 2.

Id. art. 9(1).

See id. art. 4.

Id. arts. 20 & 21.

Id. art. 23.

Id. art. 25.

Id. art. 34.

See Temporary Provisions on Administration of Rural Mutual Finance Societies, art. 2.

Id. art. 3.

Id. art. 9(2).

Id. art. 9(3).

Id. art. 41.

Id. art. 42.

Id. art. 45.

A rural finance mutual society’s capital adequacy should not be less than 8%. Loans to a single member should not exceed 15% of its net capital while loans to a single enterprise member and connected members not exceeding 20%. Loans to the ten largest borrowers should not exceed 50% of its net capital. Loan loss provisioning ratio should not be less than 100%. See id. art. 47.

Guidance on Pilot Small-value Loan Corporations, para. 1.

Id. para. 2.

Id.

Id. para. 4.

Id. para. 3.

Id.

Id. para. 4.

United Nations, Building Inclusive Financial Sectors for Development (2006), at120.

Wang Zhongyu, Explanations on the Restructuring Scheme of the State Council, March 5, 2003.

Banking Supervision Law, art. 2.

Core Principles for Effective Banking Supervision, Principle 1(2).

Banking Supervision Law, art. 5.

Under the Banking Supervision Law, the regulators of the CBRC shall have the professional skills and working experiences as required for performing their functions; and shall perform their duties with integrity and in accordance with laws and regulations, and shall not take advantage of their positions to seek inappropriate gains, or concurrently hold a position in enterprises including financial institutions; and shall keep the state secrets and bank secrets for the banks supervised and other parties concerned. See id. arts. 9–11.

On a detailed discussion of the problems with CBRC’s independence, see generally Zhongfei Zhou, On a Legal Framework for Maintaining Banking Regulator Independence, Chinese Journal of Law, 174(1), 2008, at 40–50.

Eva Hüpkes, Marc Quintyn & Michael W. Taylor, The Accountability of Financial Sector Supervisors: Principles and Practice, IMF Working Paper (WP/05/51, Mar. 2005), at 10.

As regards a discussion on the difficulty in measuring a banking regulator’s objectives, see id. at 10–15. See also Charles Goodhart, Financial Regulations: Why, How, and Where Now? (1998), at 61–72 (discussing the difficulty in quantifying the benefits and costs of banking regulation and supervision).

Under the Banking Supervision Law, the regulatory objectives of the CBRC are first to facilitate lawful and sound operations of the banking industry and second to maintain the public’s confidence in the banking industry. Banking Supervision Law, art. 3.

Banking Supervision Law, art. 12.

Id. art. 14. On a detailed discussion of the problems with CBRC’s accountability, see generally Zhongfei Zhou, On a Legal Framework for Maintaining Banking Regulator Accountability, Legal Science, 308(7), 2007, at 81–90.

Commercial Banking Law, arts. 3 & 76.

Id. art. 3 (8).

Id. art. 46.

PBOC Law, art. 4 (4).

The PBOC has issued several rules in this regard including the Trial Measures on the Administration of Inter-bank Borrowing and Lending, the Provisions on the Administration of Securities Companies’ Entrance into Inter-bank Markets, the Provisions on the Administration of Fund Management Companies’ Entrance into Inter-bank Markets, and the Provisions on the Administration of Finance Companies’ Entrance into Inter-bank Borrowing and Lending Markets and Bond Markets.

Commercial Banking Law, art. 3 (7).

Id. art. 74.

A financial institution used to submit its application to the National Center for Inter-bank Borrowing and Lending and the Central Company of Governmental Bond Registration and Settlement separately. After examining the application, the two agencies reported relevant documents to the headquarters of the PBOC for record. Since April 20 2006, the Shanghai headquarters of the PBOC has replaced the Beijing headquarters of the PBOC to assume responsibility for inter-bank bond market and inter-bank borrowing and lending market entry. See China Business News (in Chinese), 13 April, 2006, at. B 3.

See Regulations on the Administration of Foreign Exchanges, arts. 22 & 44.

Joseph J. Norton, Taking Stock of the “First Generation” of Financial Sector Legal Reform (World Bank Law and Development Working Paper Series, No. 4, 2007), at 16–21 (Professor Norton argues that financial sector reform needs to be part of broader objectives for the sound economic development of a particular developing country and is directed toward broadening the financial system to be more inclusionary).

Financial Services and Markets Act (UK), part. 1, 2(2). Very few banking laws tenuously and indirectly connect banking regulatory responsibilities to financial inclusion. For example, the German Federal Banking Supervisory Office shall counteract undesirable developments in the banking and financial sector which may involve serious disadvantages for the national economy. See German Banking Act, Division 2, s.6(2). The Finnish Financial Supervision Authority shall monitor and analyze the availability and pricing of banking services provided by credit institutions. See Act on the Financial Supervision Authority of Finland, Section 4(6a).

See House of Commons Treasury Committee, Financial Inclusion: The Roles of the Government, the FSA and Financial Capability, Nov. 2006, para.39, at 17.

Banking Supervision Law, art. 3.

See House of Commons Treasury Committee, supra note 75, para. 44, at 18.

Id. at 19.

See id. para. 42, at 18.

T. Wilhelmsson, Services of General Interest and European Private Law, in International Perspectives on Consumers’ Access to Justice (C. Rickett and T. Telfer eds, 2003), at 149, 154. Wilhelmsson argues that services of general interest have the following features: the service fulfils a basic need for its users; there is often not any reasonable alternative to the service; there are few producers of the service; and the service is based on a long-term relationship.

French Banking Act of 1984, art. 58.

Jan Evers & Udo Reifner, The Social Responsibility of Credit Institutions in the EU: Access, Regulation and New Products (NOMOS Verlagsgesellschaft, Baden-Baden, 1998), at 46.

C.f. Sir Callum McCarthy, who was previously Chairman of Ofgem before becoming Chairman of the FSA, has commented that he was struck by the fact that the FSA had no statutory duty comparable to that placed upon Ofgem to have special regard for those on low incomes—an odd absence given the importance of financial services in our society. See House of Commons Treasury Committee, supra note 75, para. 43, at 18.

See Larry Catá Backer, Multinational Corporations, Transnational Law: The United Nations' Norms on the Responsibilities of Transnational Corporations as a Harbinger of Corporate Social Responsibility in International Law, Columbia Human Rights Law Review (Winter 2006), at 289–299.

See id. at 299.

See id.

When a regulatory authority is created and establishes regulatory requirements, an implicit contract is perceived as having been created between the user of financial services and the regulator, i.e., the consumer assumes that, because there is an authorization procedure, specific aspects of regulation are established, the supplier of financial services is authorized and supervised and the institution is therefore safe. See Charles Goodhart et al, Financial Regulation: Why, How and Where Now? (1998), at 15.

Jan Evers & Udo Reifner, supra note 82, at 40.

Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 Relating to the Taking up and Pursuit of the Business of Credit Institutions, art. 20(4).

Jan Evers and Udo Reifner, supra note 82, at 41.

See Thorsten Beck & Augusto de la Torre, The Basic Analytics of Access to Financial Services (World Bank Policy Research Working Paper 4026, Oct. 2006), at 2.

Bobby Banerjee, The Problem with Corporate Social Responsibility (manuscript 2005), at 8.

See Backer, supra note 84, at 301–302.

See Jan Evers, A European Regulation for Social Responsibility of Banks? Learning the Lessons from the US Community Reinvestment Act (manuscript, 2000), at 2.

See Cynthia A. Williams and Ruth V. Aguilera, Corporate Social Responsibility in a Comparative Perspective (manuscript, 2006), at 3–4.

Company Law, art. 5.

See supra Sections 1 and 2.

See United Nations, supra note 52, at 134.

A number of specific restrictions are listed by the United Nations’ document, including (1) entry requirements are onerous, both in terms of minimum capital requirements and licensing procedures; (2) uncollateralized loan portfolios are not allowed or carry excessive provisioning requirements; (3) even where uncollateralized portfolios are allowed for microfinance, the lack of traditional collateral can become a constraint to accessing resources from financial markets, due to legal restrictions or excessive risk weighting of the asset; (4) there is not enough regulatory leeway to introduce new products; (3) the ability to open new branches is restricted and requirements for branches do not correspond to the needs and possibilities of the institutions concerned, particularly in rural areas; (5) reporting requirements, including accounting rules, are ill adapted to the functioning of the institutions concerned; and (6) non-bank financial institutions are excluded from access to the inter-bank market and to the payments system. See id.

See Nicola Howell and Therese Wilson, Access to Consumer Credit: The Problem of Financial Exclusion in Australia and the Current Regulatory Framework, Macquarie Law Journal, 5, 2005, at 141.

100

Rural credit cooperatives were formed according to the Rural Credit Cooperative Provisions issued originally in 1990 and revised in 1997 by the PBOC, although they existed long before the PBOC’s rules. The legal basis of rural credit cooperatives can be dated back to the Common Program of Chinese Peoples’ Political Consultative Conference, the same legislative level as the NPC, in September 1949. Under article 38 of the Common Program of Chinese Peoples’ Political Consultative Conference, people in towns and villages are encouraged to form credit cooperatives on a voluntary basis. Although the Banking Supervision Law and Commercial Banking Law mention rural credit cooperatives, they do not prescribe the requirements for setting up a rural credit cooperative and the business powers of a rural credit cooperative. Village banks, loan corporations and rural mutual finance societies are formed, respectively, based on the Temporary Provisions on Administration of Village Banks, Temporary Provisions on Administration of Loan Corporations, and Temporary Provisions on Administration of Rural Mutual Finance Society issued by the CBRC in 2006.

101

See supra notes 22, 32, and 40 and accompanying text.

102

Temporary Provisions on Administration of Village Banks, art. 13.

103

Id. art. 8(9); Temporary Provisions on Administration of Loan Corporations, art. 9(5).

104

First Council Directive 77/780 of 12 December 1977 on the Co-ordination of Laws, Regulations, and Administrative Provisions Relating to the Taking up and Pursuit of the Business of Credit Institutions, art. 3(2)(a).

105

Commercial Banking Law of 1995, art. 12.

106

See supra notes 34–35 and 44 and accompanying text.

107

Some authors argue that microfinance institutions and credit unions should be required to maintain higher capital adequacy ratios than banks because of their governance, diversification, and the volatility of earnings. However, there are not yet sufficient empirical data to firmly conclude that microfinance institutions are, as a general rule, more risky than commercial banks. See Tor Jansson, Ramón Rosales, and Glenn D. Westley, Principles and Practices for Regulating and Supervising Microfinance (Inter-American Development Bank, Sustainable Development Department, Micro, Small and Medium Enterprise Division, 2004), at 64–65.

108

See id. at 67.

109

Temporary Provisions on Administration of Village Banks, art. 41.

110

See Tor Jansson, Ramón Rosales, and Glenn D. Westley, supra note 108, at 67 (stating that restrictive limits increase diversification and reduce risk but at the same time may prevent the institutions from effectively serving their most successful clients).

111

See also Robert Peck, Christen, Timothy R. Lyman and Richard Rosenberg, Microfinance Consensus Guidelines: Guiding Principles on Regulation and Supervision of Microfinance (CGAP, 2003), at 6 (stating that non-prudential regulatory issues include enabling the formation and operation of microlending institutions; protecting consumers; preventing fraud and financial crimes; setting up credit information services; supporting secured transactions; developing policies with respect to interest rates; setting limitations on foreign ownership, management, and sources of capital; identifying tax and accounting issues; plus a variety of cross-cutting issues surrounding transformations from one institutional type to another).

Titel: Combating Financial Exclusion in China: A Banking Regulatory Perspective
verfasst von: Yufeng Gong
Zhongfei Zhou
Verlag: Springer US
Buch: China’s Emerging Financial Markets
Print ISBN: 978-0-387-93768-7

Electronic ISBN: 978-0-387-93769-4

Copyright-Jahr: 2009
DOI: https://doi.org/10.1007/978-0-387-93769-4_16