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Study On Technologies For Financial Inclusion in BRICS
Study On Technologies For Financial Inclusion in BRICS
Study On Technologies For Financial Inclusion in BRICS
© Social Sciences Academic Press and Springer Nature Singapore Pte Ltd. 2018 241
X. Zhao et al. (eds.), BRICS Innovative Competitiveness Report 2017,
Research Series on the Chinese Dream and China’s Development Path,
https://doi.org/10.1007/978-981-10-8078-4_10
242 X. Zhao et al.
With the development of global society and economy, the concept of inclusive
growth and sustainable development has also injected new connotation into
financial inclusion. The core of financial inclusion is to enhance the availability of
financial services, not only to promote sustained economic growth, but also help
alleviate poverty, improve the position of vulnerable groups, and improve social
and economic inequality. Therefore, compared with developed countries, the
development of Financial Inclusion in the developing countries with underdevel-
oped society and economy and incomplete financial market is even more important.
Emerging market countries represented by BRICS countries have explored and
practiced earlier in system design, business model and technological innovation of
Financial Inclusion, and achieved remarkable results. Research on the development
process of the technology innovation of Financial Inclusion in BRICS countries will
be beneficial to our understanding to the Financial Inclusion development strategy
and its implementation, so as to promote the financial system to be further deepened
and more inclusive.
1.1 Overview
More than 50% Brazil’s major financial institutions including banks, credit coop-
eratives and SCMEPPs are collectively located in the southeastern Brazil, while the
northern region accounted for only less than 10%. It is clear that Brazil’s wealth and
financial resource are asymmetrically distributed. Since the 1990s, in order to enable
the vulnerable groups such as small and micro enterprises and low-income groups
subject to financial services and financial products, the Brazilian central bank mainly
launched two stages of financial inclusion policies. The first stage was to diagnose
and cooperate. The Brazilian central bank firstly started financial inclusion business
through interdepartmental cooperation. For example, the Brazilian central bank
conducted communication and discussion with all departments under the help of
financial inclusion forums and issued Financial Inclusion Report (FIR) to provide
support for research on financial inclusion. At the same time, regarding the Financial
Inclusion system design, the Brazilian central bank and the Ministry of Finance,
Department of Social Development and other departments actively cooperated and
formed a comprehensive, multi-sector Financial Inclusion system. The second stage
is to promote international cooperation. Brazil has been actively involved in the
discussion of the Financial Inclusion Experts Group (FIEG) and actively cooperated
with international institutions such as the Alliance for Financial Inclusion (AFI) and
Consultative Group to Assist the Poor (CGAP) to provide sufficient external
resources for the development of financial inclusion in the country.
10 Study on Technologies for Financial Inclusion in BRICS 243
Fig. 1 Availability of deposit and loan services in Brazil from 2007–2014. Source Financial
Assess Survey IMF
10 Study on Technologies for Financial Inclusion in BRICS 245
2.1 Overview
As per the Report on Indian Financial Inclusion Development in 2014, India has an
average of about 7.5 bank branches per 100,000 population in 2012, yet the
poverty-stricken area has only 3.5 bank branches per 100,000 population. In terms
of financial business structure, India’s savings and credit services availability also
shows a clear inequality. About 50% of Indian residents have savings accounts,
while only one in seven Indian residents have access to bank credit. From a sta-
tistical perspective, increasing the penetration degree of financial credit comprises
an important part of Indian Financial Inclusion development. In recent years,
through the efforts of the Reserve Bank of India and the regulatory authorities,
financial penetration degree in India has been significantly improved. However data
from the Financial Access Survey conducted by the IMF shows that compared with
developed countries and some major developing countries, financial exclusion
degree in India still maintains at a low level, and Financial Inclusion degree in India
needs to be further improved (Table 1).
Generally, India’s implementation of financial inclusion strategy can be divided
into three stages. The first stage: 1950–1960, the cooperative financial institutions
provided loans for agriculture. The most important cooperative financial institutions
are primary agricultural credit association, which is formed by raising funds from
farmers and in return, to provide loans to farmers. The county level primary agri-
cultural credit association can also be combined with each other to jointly form a
regional center bank responsible for providing loans for the members of
Agricultural Credit Association. 1970–1980 have witnessed the second stage.
Regional Rural Banks and the National Bank for Agriculture and Rural
Development were gradually established in India. Rural banks started involving in
rural financial market as an official financial institution, and Indian the National
Bank for Agriculture and Rural Development provided support to rural financial
institutions as policy related bank. The third stage began from 1990 to this day as
the implementation of Self-Help Groups (SHGs)-Banking Project has delivered
convenient financial services to low-income groups. India’s innovative self-help
group guarantee model has greatly contributed to the development of microcredit
businesses.
During the early stage of India’s promotion of Financial Inclusion, the most
prominent feature is implementing state intervention. In a broad sense, priority
sectors include sector of agriculture, handicrafts, micro-enterprises, education, real
estate, import, export and trade. Loan policy for priority sectors requires domestic
commercial banks to lend to the priority sectors more than 40% of the total required
loans, and foreign banks needs to lend at least 31%. As of March of 2014, about
14.1 million Rupees loans were released to the priority sectors. This mandatory
credit policy entitles the vulnerable sectors to the special rights of financial service.
Financial institutions provided low-income groups such as farmer household with
financial services and credit supports in accordance with policies, which to a certain
extent facilitated the penetration and inclusion of financial services and became the
early attempt of India’s financial inclusion. But this strong intervention policy
distorts the efficiency of resource allocation. Subsequently, Reserve Bank of India
and the Financial Sector Legislative Reforms Commission gradually utilized a
method of combining mandatory regulations with marketization to benignly guide
the financial institutions to tilt toward the vulnerable sectors.
3.1 Overview
South Africa’s economy has the classic binary characteristics of urban and rural
areas and black and white people. The prosperity of the first world economy is a
sharp contrast to the destitution of the third world economy. Since South Africa
vigorously pushed forward international transactions in 1994, first world economic
and financial sectors have been developed rapidly. Inflows of foreign capital and
enterprises have injected new vitality into South Africa’s first world economy.
However, due to long-term exclusion and discrimination, the development of the
third world economy with black and other colored people as its main powers has
always been hindered severely. Those vulnerable groups have always been on the
brink of South Africa’s economy, and their access to financial services is fairly
limited. At the beginning of the 21st century, only half residents of South Africa
could get banking service. Over 90% of the groups that experienced financial
exclusion were black and other colored people. In rural areas, only about 20% of
the population have bank accounts, while nearly 60% of the urban population do.
Financial exclusion in South Africa is extremely severe because of culture, race and
other factors. Therefore, advancing financial inclusion is of great significance to the
inclusive development strategy of South Africa.
10 Study on Technologies for Financial Inclusion in BRICS 249
3.2.1 Microfinance
In order to provide financial services to more black and poor people, South Africa
implements differentiated institutional arrangements. For example, the South
African authorities have implemented an immunity act that allows poor potential
customers without official identification or household register certificate to skip
verification and directly open bank accounts, and thus encouraging them to accept
financial services. Moreover, South Africa also lowers the maximum limit of
microfinance (in South Africa, microfinance refers to cash loan that is less than or
equal to 10,000 ZAR, which is about 1515.15 US dollars), restricts microfinance’s
highest amount of interest and etc., thereby improving the feasibility of microfinance
business in low-income groups. A series of policy and system designs have provided
strong guarantee for the rapid development of microfinance in South Africa.
Distinctive microfinance credit reporting system is South Africa’s important
pillar to facilitate the development of microfinance as well as an important content
of the country’s innovation model of financial inclusion. South Africa’s microfi-
nance market is dominated by banks and microfinance companies. About 5–8% of
the total amount of consumption loans is from microfinance market, making it
become an important component of South African residences’ consumption funds
sources. In 2002, Microfinance Regulatory Council established National Loans
Register, and as the database of the country’s loan information, it is in charge of
collecting the transaction information of microfinance institutions and the credit
information of clients. In 2005, Microfinance Regulatory Council was admitted into
South Africa’s National Credit Regulator, becoming a part of consumer credit
management. Sophisticated institutional guarantee and information system have
attracted traditional financial institutions to get involved in microfinance business,
which further promoted the development of microfinance markets. Relatively
mature information sharing mechanisms have been formed among national credit
reporting agencies, banks, non-banking credit providers and loan clients, and thus
pushing forward the orderly and healthy development of microfinance market
becomes an important force for South Africa to further advance financial inclusion.
The primary problem South Africa needs to solve to achieve inclusive development
is the exclusion of black economy and financial activities. In 1990s, the South
African government and commercial institutions jointly launched Black Economic
Empowerment, aiming to address the extreme imbalance of South Africa’s social
and economic development. The transaction capability and financial participation of
black community were dramatically improved through pushing forward the mixed
250 X. Zhao et al.
ownership reform of South African companies, helping black people become a part
of boards and participate in companies’ management and decision-making,
encouraging black people and black enterprises to participate in financial activities
and other measures. Meanwhile, financial sectors of the country’s National
Economic Development and Labor Council commit to encouraging banking system
to provide financial services for diversified client groups. Over the past 20 years or
so, there has been as many as 500 billion ZAR of black capital, and the gap of
wealth between the black and the white was drastically narrowed. With the accu-
mulation of wealth, more and more black people begin to involve and participate in
financial activities of various kinds, which tremendously elevated finance’s position
in the economy and life of black community.
4.1 Overview
Russia is a large country with vast territory, but its population distribution is
extremely uneven. Due to the influence of weather, terrain and other factors, most
10 Study on Technologies for Financial Inclusion in BRICS 251
4.2.1 Microfinance
5.1 Overview
The economic and financial development in China’s urban and rural areas is
severely out of balance because the country has long been affected and restricted by
dual structure. Due to greater risk and lacking mortgage assets, small and micro
businesses are always excluded from traditional financing institutions. On this
occasion, the Chinese government officially took the carrying out of financial
inclusion as the basis state policy in 2013. The development of financial inclusion in
China can be divided into four phases, first, during the micro-credit period in the
1990s, China mainly conducted poverty alleviation projects complying with the
model of country bank in Bangladesh, making many people wrongly understand the
financial inclusion into poverty alleviation. Second, from 2000 to 2005, also as the
period of micron finance, some rural financial institutions have started providing
diversified financial services including loan, payment and insurance to peasants and
low-income groups. Third, China has entered the stage of financial inclusion from
2005 to 2010, and attracted domestic financial institutions, large-scale, small and
medium size commercial banks to join. It enjoyed wider service objects, more
diversified and networked service mode. Fourth, China came into the stage of
10 Study on Technologies for Financial Inclusion in BRICS 253
internet financial inclusion in 2010. With the rapid development of the internet and
popularizing rate of mobile phones, the internet financial inclusion has become an
important carrier of realizing financial inclusion. Featuring low cost, low threshold
and broad coverage, with intelligent services, the internet finance has effectively
made up shortages of financing institutions’ clients including dispersal, low benefit
and high cost.
Overall, the financial inclusion in China has two major participants. One is the
financial institution entities including commercial banks, small loan companies,
village banks and so forth. The other is the internet-finance. Its rapid growth makes
financial inclusion enjoy more abundant contents, more extensive and widespread
serve objects, and play a significant role in promoting the development of financial
inclusion.
In 2013, while continuing to deepen small and micro finance, the China Minsheng
Banking Corporation Ltd. (CMBC) proposed to speed up the advancement of
financial strategies in housing estates, and jointly officially launched Minsheng
housing estates financial service stores with government, real estate agencies and
property management companies. It was the first stock-holding bank in China to
carry out layout and establishment of community bank. The community bank of
CMBC has following characteristics; (1) Build marketing alliance with merchants
within the scope of 1.5 km to jointly develop clients and improve cross-selling. For
example, merchants give out food and hair coupons to clients, and if they successful
recommended clients to open bank account at the CMBC, the bank would offer deal
base to them, achieving combination of card, net, point and circle. It not only
improves cross-selling, but excavates financing demand of neighboring owners,
making for expanding the bank’s number of clients. (2) Integrate features of
housing estates to push out series Intellectual-home products, build platform of core
products for housing estates finance and provide owners with multiple financial
services. (3) Cooperate with government and property management companies in
handling all kinds of convenience businesses. In financial strategies of the CMBC,
diversified convenience businesses have become a key manner to enhance con-
nection with clients and improve service quality. The community banks could help
one-stop payment including fees in property, parking, water and electricity as well
as telephone through cooperation with government and property management
companies, and application of mobile payment technology, so as to more com-
prehensive serve owners. Through starting community banks, the CMBC has
expanded its financial services into community and resident level and combined
financial services with residents’ daily life, which will bring benefits of expanding
254 X. Zhao et al.
contents and scope of its financial services and further cultivate new client groups,
thus improving its coverage and availability.
Jilin Province Rural Credit Bank has made a bold trial in exploring the development
path of financial inclusion, and achieved great innovation in expanding service area,
improving means of service and enriching debit and credit products as well as
collaterals, which won a wide base of clients and improved coverage and influence
of financing services in rural areas. The exemption of handling charge in deposit,
withdrawal and remittance and all standing businesses of peasant household loan in
Jilin proposed by Jilin Province Rural Credit Bank have provided conditions for
peasants to participate in financial activities. In terms of means and convenience of
financial services, Jilin Province Rural Credit Bank has a completely broad cov-
erage in physical branches, peasant-helping service points and flowing service
vehicles, and complete mobile terminal systems such as ATM and POS machines,
forming a service system integrating self-service banking, mobile banking and
WeChat banking. At the same time, it has also built agricultural loan, personal loan,
micro loan and other characteristic business centers to satisfy diversified demands
of clients. In terms of financial products and collaterals, Jilin Province Rural Credit
Bank supports featured agriculture and green industry in line with local features and
has achieving prominent outcomes by taking the lead in promoting guarantees of
direct subsidies for grain and right to derive benefits from land as well as the three
rights mortgage.
Emerging technologies such as internet, mobile internet and big data advance the
rapid development of internet finance. Taking full advantage of internet technology
is an important feature of China’s financial inclusion development at the present
stage. One the one hand, the features in trans-time-and-space and interconnectivity
of internet finance have expanded service channel and manner of traditional
financial institutions, reduced service costs and effectively improved cover degree
and convenience of financial services. For instance, with the help of big data
technology, Shanghai Pudong Development Bank brought out new modes of
financial services such as e-commerce transaction and online lending in 2013,
which realized the comprehensive online operation in such areas as online man-
agement, online data, online approval and online loan, and effectively satisfied
small and micro e-commerce with urgent needs during process of financing.
Chongqing Rural Commercial Bank officially launched an APP named Jiangyu
10 Study on Technologies for Financial Inclusion in BRICS 255
Mobile Finance in 2013, enabling clients independently check accounts, pay living
costs, set mutual transfers in “due on demand” and “regular intervals”, purchase
finance products, check credit card bill, initiate collect and other personal financial
services. On the other hand, directly rely on Internet technology as the carrier, and
facilitate innovative financial services and produces including mobile payment and
third-party payment, P2P internet loan and crowd funding as well as internet
finance products help greatly enhance penetration of financial areas. Network and
mobile payment have provided residents with more convenient channels in transfer
accounts and payment, clients will not be limited by branches and counters of
financial institutions. In addition, those vulnerable groups, who cannot get loan
from traditional financial channels could obtain “small-amount, short-time and
flexible borrowing and returning” loan with the help of internet financial platform to
satisfy their financing demands. Internet finance products enjoy simple operation
and high profitability, which can effectively solve redundant mobility of users. In
2016, frequency internet payment of non-bank institutions payment (third-party
payment) has exceeded the summation of e-payment payment of all country’s
banks. Trading volume of P2P network debit and credit platform and financing
amount of crowd funding platform have also demonstrated blown out growth. All
these indicate that with the development of the internet, financial services will
extend and cover in larger areas in cities, towns and rural areas (Fig. 2).
The BRICS has carried out the beneficial exploration and practice in strategic
policy and system design, business mode of financial institutions, application of
information technology and consumer financial education and so on, but the various
countries has taken different development model. China, India and Brazil empha-
size on providing financial services to more poverty stricken population and plan to
lead the poor and low-income groups to participate in the financial activities via
more means of commercialization, marketization on the basis of widespread
financial and non-financial institutions and developed scientific and technological
level. In South Africa, the black are still at a disadvantage compared to the white
due to discrimination against the black race. Therefore, South Africa considers race,
culture and other factors as important factors in the process of exploring the model
of financial development. The development of the Russian financial system is rel-
atively good, and the microfinance business is stable and mature. It is more focused
on promoting the construction of the software facilities of inclusive finance such as
education and personnel training and so on.
In addition, there is a big gap between developing countries and developed
countries in inclusive finance. Due to differences in economic level and financial
infrastructure, focuses are different in constructing the inclusive financial system.
Developed countries have high economic level and good social welfare. Diversified
and multi-level financial institutions can meet the needs of all kinds of customers.
Therefore, the government pays more attention to regulating and perfecting the
system and laws in the process of promoting inclusive finance, thus guaranteeing
the coverage and expansion of financial services. On the contrary, developing
countries have lower level of economy and deficiency in the financial system.
Remote areas and vulnerable groups are lack of financial services. Thus, business
model and innovative design of products should be paid more attention to. In
addition, we should also recognize that development of financial inclusion not only
depends on the financial sector itself, but also needs effective coordination and
support from departments of education, law and finance. Only this way can we
promote the financial order and healthy development of financial inclusion.
In recent years, the BRICS countries have pursued rapid economic growth while
focusing more on the inclusive and sustainable development of economy and
finance. At present, the BRICS countries have reached a consensus on the imple-
mentation of financial inclusion and strengthened international exchanges and
cooperation to actively explore the development path of the financial inclusion.
According to the data from Global Financial Inclusion Database of World Bank in
2014, the BRICS have made significant results in spreading financial services such
as personal savings, credit and payment. More than 50% of the population who are
aged 15 or older have a financial account. Except for India, the proportion of net
usage for payments or transactions have also reached more than 10%, with China
and South Africa developing faster in Internet payments or transactions. Moreover,
the BRICS countries have also seen significant improvements in remittances,
10 Study on Technologies for Financial Inclusion in BRICS 257
Fig. 3 Indicators of financial inclusion in some countries and regions in 2014. Note Accounts for
the proportion of people aged 15 and older who have a financial institution account; Digital
payments is measured by the proportion of people aged 15 and older who use the internet for
payments and transactions; Domestic remittance represents the proportion of the population of the
domestic remittance business in the population aged 15 and over in the past year; Savings accounts
for the proportion of people aged 15 and older who have been saving in financial institutions over
the past year; Credit says the proportion of people over the age of 15 over the past year has been in
financial institutions. Data Source Global Financial Inclusion Database, WB
savings and credit services. However, compared with high-income countries, the
financial penetration and popularity of BRICS countries still have a lot of room to
improve, and there is still a long way to go in the development of inclusive finance
(Fig. 3).
Due to the large population size and rapid economic development, the BRICS
countries have become increasingly important in international financial and eco-
nomic activities. The development of the financial sector in the BRICS countries
will also have a far-reaching impact on the development of global inclusive finance.
In the future, digital technology will become an important driving force for the
development of inclusive finance. At the 2016 G20 Hangzhou Summit, “focusing
on digital inclusive finance” and “the construction of financial data collection and
indicators” became important topics of this meeting. China submitted three
important documents to the G20 Summit, including G20 High-Level Principles for
Digital Financial Inclusion, G20 Financial Inclusion Indicators and the G20 Action
Plan on SME Financing, which will provide important guidance for the develop-
ment of global financial inclusion. Digital financial inclusion will integrate the
Internet technology with modern finance, using digital means to provide low cost,
high efficiency of financial services for a broader area, a wider range of groups, to
further improve the financial service’s popularity and availability and to be an
inevitable trend of each country in developing financial inclusion.