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This book explores for the first time the world of micro-finance, Chinese startups, and the digitalization of the Chinese economy. Through the cases such as the Ant Financial Services Group, CFPA Microfinance, micro-financial projects of China Minsheng Bank, Meixing in Nanchong, and more, this book introduces the practical exploration in the recent years from the perspectives of microfinance, financing of small and medium sized enterprises, digital inclusive finance, and credit.

From the perspective of management, it especially integrates an enterprise’s task, vision, and value into the design of organization process, deeply explores how to realized the double bottom lines of social and financial performances, manifests how microfinance’s marginal cost is reduced by digital finance such as data, internet, cloud computing, artificial intelligence and the advantages of digital finance in providing convenient, low-cost, and touchable service, and discusses its huge technological bonus to small-amount, decentralized, and large-quantity microfinance. This book will be of value to journalists, economists and researchers.





Chapter 1. Can Microfinance Achieve Both Social and Financial Goals? Investigation on MicroCred Nanchong

MFIs (Microfinance Institutions) are beset with a major problem of how to balance both the social goal of serving vulnerable groups and the commercial goal of making financial profits. MicroCred Nanchong Co., Ltd (hereinafter referred to as “MicroCred Nanchong”), the first wholly foreign-owned micro-credit company in China, expects to achieve its social goal through social performance management. Meanwhile, despite resource constraints, MicroCred Nanchong strives for financial profits and accomplishes its financial goal based on the leverage of interest rate by balancing the depth and scope of service as well as the efficiency of production and management, and effectively controlling the operating cost. By doing this, it has established an internal mechanism that gives consideration to both social and commercial goals. MFIs can learn how to achieve both goals from the success of MicroCred Nanchong.
Huacen Xu

Chapter 2. Boundaries of Microfinance: A Case Study of Microfinance Business of CD Finance

We will discuss the boundaries of microfinance with the micro loans issued by CD Finance Management Co., Ltd. (hereinafter referred to as CD Finance) in rural areas as an example. Microfinance is fundamentally different from traditional finance in terms of customer positioning, loan limits, credit products, risk control methods, etc., which constitute the upper boundary of microfinance. Microfinance shall determine the loan interest rate that enables its financial self-sufficiency and complies with the social mission and goal, which is the lower boundary that distinguishes it from charity. Adopting the Rosenberg model and the cost-plus pricing method for calculation, we found that the interest rate that should be charged by CD Finance for maintaining a low profit rate (1%) is almost equal to its actual loan interest rate, indicating that CD Finance is basically in the state of financial self-sufficiency.
Yu Luo

Financing of Small and Medium-sized Enterprises


Chapter 3. Solving the Financing Difficulty of SMEs by Community Construction: Exploration of “3+1 Integrity Alliance”

The financing difficulty of SMEs has become the bottleneck that hinders the development of SMEs. Zhengzhou “3+1 Integrity Alliance” adheres to the principle of honesty, applies credit points and risk appraisal and guide member enterprises to carry out “self-organized” management, in order to achieve after-loan risk control. In this way, it has built itself into a financial service organization that controls, reduces and bears the SMEs credit risk. By means of community management, “3+1 Integrity Alliance” makes integrity valuable and provides precious experience on solving the financing difficulty of SMEs.
Yan Li, Lin Wang

Chapter 4. Big Bank, Small Finance: The Practice of China Minsheng Bank

As determined by the differences between micro, small and medium-sized enterprises and large enterprises in terms of the normalization of financial management, access to credit records and value of mortgage assets, the risk control of the loans for micro, small and medium-sized enterprises is entirely different from that for large and medium-sized enterprises. If the financial institution originally dedicated to the loans for large enterprises marches forward the small and micro finance sector, it needs to substantially adjust its risk control method, process and structure. As one of the earliest large traditional commercial banks that step in the blue ocean of small and micro finance, China Minsheng Bank (CMBC) has kept exploring the credit risk control and experienced the transformation from the traditional model focusing on experience control and artificial monitoring to the current data analysis model, and is establishing the standard, modular and large-scale risk control management model of “credit factory”. The experience of CMBC is a great reference to large banks running small and micro finance
Jiahong Shi, Lin Zhou

Digital Inclusive Finance


Chapter 5. Information Reform and Efficiency Improvement of Traditional Micro Finance: Case of CD Finance

CD Finance is dedicated to providing mortgage-free, efficient and green micro-credit services to rural population in poverty. In order to solve the issue of high cost and high risk of the traditional micro-credit model, CD Finance has successfully spread the use of mobile phones and non-cash transactions through the innovation of digital information technology, and lowered labor cost and capital risk by means of the internal flat management system reform, enabling famers to acquire loans more conveniently and efficiently. CD Finance also cooperates with big data microloan companies, and they have achieved mutual benefit and are making every effort to explore the micro-credit industry through “Internet + targeted poverty alleviation”.
Lianyun Zeng, Jiahong Shi

Chapter 6. Defender “PPDAI”: Study on P2P Online Lending Platform PPDAI

Being an important force for the development of inclusive finance, P2P online lending shows extremely strong vitality in China. While many P2P platforms in China are changing their business models and transforming themselves into commercial banks, only PPDAI adheres to running a pure online lending platform with no advance payment or offline business. As a defender of this sector, PPDAI has acquired a safe and stable growth but at a rate much lower than that of peers. The important implications of this case include the follows: First, the backward social credit information system constitutes the fundamental reason for the variation of P2P online lending platform business model, and therefore the social credit information system is the lifeline to the healthy development of P2P online lending platforms. Second, an important reason for the market disorder of this industry lies in the lack of law and regulation. It is of great urgency to perfect the laws and strengthen supervision.
Yingxin Zhang

Chapter 7. “Digital Finance + Insurance + Leading Enterprise + E-Commerce”: Rural Inclusive Finance Case of Ant Financial

In view of the particularity of sheep breeding and the low credit of farmers, Mongolian Sheep Animal Husbandry Co., Ltd. (hereinafter referred to as Mongolian Sheep) has developed the “Sheep Union” financial cooperation model of breeding supply chain that integrates “farmers and herdsmen + cooperatives + companies + banks + guarantee + insurance” through exploration. Mongolian Sheep supply chain finance further cooperates with Tmall e-commerce and introduces Ant Financial, which strengthens and improves risk control of the supply chain finance and expands the channels for information collection and source of funding. Meanwhile, Mongolian Sheep and Tmall have achieved a win-win situation in terms of product sales. It can be seen that the Internet + agricultural supply chain finance not only solves the problem of risk control of the supply chain finance, but also guarantees both sales and financing.
Yingxin Zhang

Chapter 8. Wenshang Pioneer Loan: Case of JD Rural Supply Chain Finance

Wenshang Pioneer Loan is a part of “JD Agricultural Loan – Pioneer Loan”, the second program of JD Finance in rural supply chain finance. Targeting the production and supply chain of field grain crops in Shandong area, this program cooperates with the core enterprise Shandong Daliang Company to realize the service model of e-commerce + supply chain finance. As demonstrated by the data and experience accumulated by the program within a production cycle and a loan cycle, e-commerce can depend on the core enterprise to significantly lower its business cost to enter the sector of rural finance; and supply chain finance can help farmers lower their operating risks and further control the credit default risks based on the involvement in the whole process of production and operation, quality control and the support of marketing. However, further exploration and improvement are needed to give full play to the e-commerce platform in expanding the market of the grain crops supply chain, and to further make use of digital information technology to participate the whole credit process.
Congyi Ju, Xinyu Chen, Yangrui Li, Zuo Wang, Wenzhao Tong



Chapter 9. “Credit Use” and Cost of Discredit: The Supreme People’ Court and Zhima Credit Cooperating to Punish “Lao Lai”

Severe punishment constitutes an important condition for the reputation mechanism to play a part in governance. We believe that “credit use” can increase the cost of discredit and drive the reputation mechanism to play an effective role, and further analyze and test this point of view with the case of the Supreme People’s Court and Zhima Credit cooperating to punish “Lao Lai” (i.e. dishonest person). The case study discovers the follows: First, the cost of discredit exerts a significant influence on the effect of the reputation mechanism. Second, the increase of the scenarios where credit is used can effectively raise the cost of discredit. Third, market-oriented operation of credit investigation will evidently improve “credit use” of society and strengthen the role and effect of the reputation mechanism. Fourth, the reputation mechanism functions as a great support to the legal mechanism.
Yan Li, Lin Wang, Jianxiao Su, Yuqin Tang, Puning Wang

Chapter 10. Bairong Zhixin: Big Data and Credit System Construction

Finance, particularly microfinance, proposes great demands for credible third-party credit evaluation services. However, the backward social credit system in China is far from meting the demands. Such new technologies as the Internet, e-commerce and big data provide a new opportunity for the rapid development of the credit industry. Bairong Zhixin has established an effective risk assessment model depending on its own big data technology and online and offline multi-dimensional data from retail, social activities, media, aviation, education, operators and brands etc. As proved by the case of Bairong Zhixin, big data credit assessment technology can improve traditional credit risk evaluation based on the special “dynamic information” mechanism, expand the coverage and relieve information asymmetry in financial activities. By applying big data technology to credit rating, it will innovate and advance the industry and play an extremely important role in facilitating the social credit system construction in China.
Bao Sun
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