Report: rural financial institutions should pursue dual objectives

China's rural financial institutions should pursue dual objectives featuring both social and commercial values, to achieve the goals of inclusive finance and commercial sustainability, according to a report on the development of financial inclusion in China.

Focused on rural finance and released on Monday by the Chinese Academy of Financial Inclusion at Renmin University of China, or CAFI, the report said that China's rural credit system is rooted in serving farmers and adheres to the principle that "what is taken from the pole should be used for the people", and currently mainstream financial institutions in rural areas consist of rural credit cooperatives and rural cooperative banks operating in a quasi-commercial banking model, along with an increasing number of rural commercial banks.

Yet, rural commercial banks are facing significant challenges to thrive and balance social and business objectives, which include high costs to serve dispersed rural customers from outlets in counties, and the dispatch between diverse and ever-changing financial demands in rural areas and single-business models of the banks.

Those challenges also include the absence of clear social value objectives and reliance on market mechanisms to address market failures, as well as having to deal a wide range of government and social demands with relatively small profit margins.

The report suggested that, based on the experiences of different countries around the world, it is necessary for China to enact special legislation to establish rural financial institutions with dual objectives of social responsibilities and commercial values, and to provide clear regulations for these institutions regarding their objectives, business models and regulatory patterns that are different from those of other commercial banks.

At a media conference for the report release, Bei Duoguang, president of CAFI, said that it is important for financial institutions in rural areas to seek balance between pursuing profits and accomplishing social responsibilities, and inclusive finance is a gateway for establishing a financial ecosystem capable of serving rural areas with both social and commercial values.