A recently published notice from the People's Bank of China (PBC) discusses a capacity enhancement project to strengthen the provision of financial services to micro, small, and medium enterprises (MSMEs). The notice requires banking financial institutions to step up credit supply to MSMEs, optimize the credit product services for self-employed traders, and expand the coverage of inclusive financial services. As per the notice, banks should increase their investment in inclusive fintech services and develop innovative credit products; they should also bring out and continuously improve loan products, such as loan renewals without repayment of principal and the pay-as-you-go loan scheme; facilitate the use of funds; and reduce the overall financial costs for MSME financing.
The notice is intended to further improve the capabilities of banking financial institutions to provide financial services for MSMEs, to strengthen the building of a long-term mechanism whereby banking financial institutions will have the confidence, willingness, ability and professionality to make loans, and to push for the provision of better financial services for the real economy in the new stage of development. The notice sets out requirements on the following aspects for enhancing the capabilities of banking financial institutions to provide financial services for MSMEs:
- Strong action should be taken not only to increase MSME financing and expand its coverage, but also to improve its quality and enhance its efficiency
- Work should be done to continuously optimize banks’ internal policy arrangements
- Concrete measures should be taken to improve the loan pricing capabilities
- Financing services and supporting mechanisms should also be improved
The notice stresses that all banking financial institutions should embed the loan prime rate in internal pricing and price transmission, enhance differentiated and thoughtfully designed pricing of loans, and strengthen their capabilities of controlling liability costs. All PBC branches should establish a sound mechanism for government-bank-enterprise collaboration and accelerate steps to promote the sharing of MSME credit information. Additionally, they should conduct assessments on the orientation efficacy of credit policies for micro and small businesses, further optimize the system for the assessment of financing environment, and make continued efforts to improve local financing environment.
Keywords: Asia Pacific, China, Banking, SMEs, Fintech, Financial Inclusion, Lending, Credit Risk, Loan Repayment, Technology Risk, PBC
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