Chinese philosopher Laozi is quoted as saying that a
thousand mile journey begins with a single step. I thought of that proverb when
I recently had the opportunity to visit the far north east of China to
investigate opportunities for agent and mobile banking in rural communities. As
I outlined in my previous blog on the opportunity
for mobile money in China, there have been positive developments from a
regulatory perspective recently. The People’s Bank of China is supporting a
pilot this year to allow agent banking in some provinces with an aim to develop
financial services down to the village level.
This is very exciting, as although China
has banking penetration of 64%, access to finance through branches, ATMs
and other channels is another matter.
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| Village Life in Rural China in Winter |
I
had an interesting insight when I visited a village in China this week. By all
accounts,
China
has nearly 1 million villages, and from what I understand, it is unusual
for a village to have a bank branch or ATM (although I would love to see
research on the distribution of branches at the village level in China). This
presents significant challenges to the residents, who will often have to travel
many kilometers to reach a branch. Despite the fact that the cash economy
prevails, this barrier of access still presents issues, as rural residents will
often receive pensions or subsidies that will be paid into a bank account. In
addition, many villagers will spend much of the year working in larger cities
and industrial areas, so domestic remittances are common. Accessing these
payments when you live 30 kilometers from the nearest branch, you don’t own a
vehicle and it is minus 30 degrees presents significant challenges!
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| Typical Grocery Store in a Chinese Village |
A
merchant I spoke to was overcoming these challenges in a fascinating way. He
runs a small grocery store in a village of a couple of thousand people, and his
customers shared their frustrations on not being able to deposit or withdraw
cash from their bank accounts without visiting the nearest town some distance
away. His solution was simple and effective. He has set up an Internet banking
account with a PC and modem, and now does electronic transfer of cash from his
account to the recipient for a small fee. He also allows withdrawals when the
sender has transferred to his bank account. He sets transaction limits so he
can manage his own liquidity and he keeps a log book to track transactions. He
has also branched into prepaid airtime direct from his bank account where he
tops up the customer’s phone from his balance and receives a small cash
commission. In essence, he is a banking agent, albeit on an informal basis.
I am
always amazed at the ingenuity shown by customers and agents in emerging
markets. This example demonstrated to me that firstly, there is absolutely an
unfulfilled need for agent banking in China, and that secondly smart merchants
will realize this need and will embrace formal agent banking solutions as they
develop. I have said previously that I believe China and other markets in Asia
like
Bangladesh
and Pakistan will eclipse anything happening in mobile money in Africa once
the programs gather momentum and the regulatory environment is established.
China is on the cusp of an exciting time in financial inclusion.
- Brad Jones
