How MetLife Foundation Supports Financial Inclusion in China
As part of a series on “Local Perspectives on Financial Health”, Sarah Willis, MetLife Foundation and Julia Arnold, a Financial Inclusion Consultant, teamed up to take a closer look at improving access and usage of financial services and products in China.
MetLife Foundation’s goal is to improve financial inclusion across its footprint, which includes economically and geographically diverse markets. We seek to ensure that low- and moderate-income families in these markets can acquire and successfully use the products and services they need to build a better, more secure life. Yet the implementation of a global financial inclusion strategy is complex so we try to approach the challenges with innovative solutions that reach consumers in different ways.
In China, MetLife Foundation funds a wide range of financial inclusion initiatives, totaling $5.8 million USD in grants over 9 projects, reaching as far as the Sichuan province in the west of China to the Jiangsu province in the east. Our newest approach to improving the financial health of consumers is through harnessing the power of social entrepreneurs. To do so, we’ve teamed up with Verb to run a series of competitions, called Inclusion Plus. Beginning on May 19, we will invite organizations and companies across China that are focused on increasing access and use of financial services among lower-income populations to enter their products, services, or programs for the chance to win grant capital and mentoring from MetLife associates.
Economic Growth & a Rapid Decline in Poverty
Opening a national competition in China meant we needed to better understand the local landscape –meaning local nuances, market data, and government policies. We did this through desk research, interviews in China, and working with our MetLife colleagues in the region.
China’s rapid economic growth over the past 20 years has been the envy of the world. In addition, China’s rapid decline in poverty is a major success story. Since the 1980s, China’s poverty rate has fallen from 52% to around 11% in 2010.
In addition to that, China made significant strides toward financial inclusion, adding around 180 million adult bank account holders. There are several possible reasons for China’s recent accomplishments in financial inclusion:
- The government has made financial inclusion a focus of its five-year plan. An objective of the plan is to enhance financial inclusion via digital finance through the right regulatory conditions to support growth and encourage greater innovation.
- Recent policy shifts toward financial inclusion, such as banking reforms, have given way to new types of financial institutions, and a focus on uptake of bank accounts.
- New technology-driven solutions have also begun to emerge. These trends contribute to the fact that nearly 8 in 10 Chinese have a bank account.
Despite this terrific progress in the last few years, China still accounts for 12% of the world’s unbanked – i.e. 240 million people and millions more who are not using financial services optimally.
Three Opportunities to Expand and Improve Financial Services
To continue moving the needle on financial inclusion, we identified three inter-related opportunities for impact in the near term.
1. Mobile Technology: Often, just getting access to financial quality services is the problem. Luckily, mobile solutions are starting to help. With more than 1 billion accounts among the three mobile operators, China leads the world in mobile phone users. China is far ahead of many other countries in using digital/mobile payments and the rapid growth of mobile phones, with over 675 million unique users added in 2015. Like much of the developing world, mobile solutions present an affordable means to reach China’s unbanked and underserved populations. China’s growing FinTech industry – with accompanying regulation to support qualified lenders – holds part of the answer to two of the most marginalized groups: rural households and migrant workers.
2. Rural Inclusion: Though China has made impressive progress toward ensuring a majority of rural adults have a bank account, 234 million Chinese do not have bank accounts. Of these unbanked, 71% live in rural areas. This implies that the majority of rural residents only use cash, which is inefficient and costly. Plus, they’re unable to take advantage of working with banks or lenders. Not for profits have entered this space, including Accion, Positive Planet and Opportunity International, introducing formal borrowing to compete with the traditional informal lending and training programs to build local organizations’ capacity to provide clients with better services.
3. Migrant Inclusion: Internal migrant workers encounter difficulties accessing banking services due to China’s hukou system, which makes accessing employment protection, education, and health care difficult outside of one’s home area. In cities, migrants cannot always open a bank account or get a loan. In field interviews, Chinese entrepreneurs acknowledged the problem of this large population segment, yet there was no ready solution.
Today, China has the opportunity to be at the forefront in driving digital innovation in financial services – services that move beyond basic access to enhanced customer engagement. While China is relatively well-positioned on usage of accounts, especially savings, financial services providers can collectively adopt customer-centric product design and solve pain points in delivery, access, and utilization.
Through MetLife Foundation’s upcoming Inclusion Plus competition, we anticipate seeing even more innovations and ideas emerge, which will build on and amplify existing efforts around these three levers. We look forward to seeing continued growth and innovation in China, and ultimately the improvements consumers are able to make in their lives through the use of high quality financial services.
Hear from MetLife Foundation Partner, LISC, on Credit and Financial Stability
Credit and Financial Stability
On the North Side of Chicago, the Jane Addams Resource Corporation (JARC) has worked for more than 30 years with a mission to ensure that nobody who works has to live in poverty. To reach that goal today, the nonprofit offers an integrated mix of services to clients as one of the first members of the network of Financial Opportunity Centers (FOC) supported by the Local Initiatives Support Corporation (LISC).
JARC trains low-income jobseekers, helps them find employment, coaches its clients to take control of their household finances, and helps them access income supports that can help individuals meet their basic needs while in job training and entry-level employment. Like FOCs across LISC’s national network of more than 80 community-based nonprofits, JARC also helps its customers build credit—a powerful tool for workers to access everything from more job opportunities, safer and higher-quality housing, and assets like homes and cars.
Kathleen Fox first visited JARC to take classes at the organization’s Computer Technology Center; in her sixties and unemployed for two years, she hoped that learning more about technology would improve her job prospects and marketability.
Fox’s employment coach helped her identify good job opportunities, build a resume and prepare for interviews. She found a job as a front desk attendant at an apartment building, earning $15.15 per hour. At the same time, Fox engaged with JARC’s financial coach and realized that it was possible to improve her discouraging relationship with money.
Small Changes, Big Goals
Fox felt especially defeated and hopeless when thinking about her credit history. The cost of having no credit or a low score is estimated at more that $200,000 over the course of an individual’s lifetime. A good score opens the way to loans at a fair rate and the ability to get a phone, appliances or utilities without leaving a deposit. Credit can even impact a person’s ability to access job opportunities or safe and healthy housing: landlords of higher-quality apartments often use credit to screen prospective renters, and nearly half of employers conduct credit checks on some or all job applicants.
Fox worried that filing for bankruptcy years ago had put a good credit score permanently out of reach—but after the first few coaching sessions, she began to see that small “wins” could add up to big changes and a new vision for her financial future. She started tracking her expenses, identifying spending habits and patterns, and making changes to channel more money into savings. Armed with confidence from her new financial management habits, Fox set the goal to bounce back from bankruptcy.
Twin Accounts, an innovative financial product developed by LISC, provided exactly the type of credit-building opportunity that Fox was seeking. Eligible participants take out a $300 “credit builder” loan, the proceeds of which are deposited into a locked savings account (aka, the “twin” account) rather than disbursed to the borrower. Participants re-pay approximately $26 per month on the loan, and earn a 1:1 match for on-time payments; in that way, the product incentivizes good credit management and also allows the participant to end the 12-month program with $600 in savings, which are typically used to open a secured credit card.
Most importantly, Twin Accounts report on-time payments to the credit bureaus, meaning that a participant can potentially achieve a FICO score of 700 or higher, depending on individual circumstances and other credit activity. FOC financial coaches provide encouragement and tips on maintaining positive credit-building behavior: for example, keeping credit card balances below 30 percent of the credit limit and always paying on time.
Nearly 70 percent of all Twin Accounts participants successfully complete the program, and of those, most increase their credit score. On average, participants who start the program without a credit score finish with a score of over 630. And those who start with bad credit and experience an increase see an average jump of 60 points, enough to move from a poor or sub-prime score into a prime score. That’s a change that can help change someone’s life.
Continuing to Build Credit
In Chicago, Fox employed her new budgeting skills to ensure that she could meet her monthly expenses while still building savings. Her 12 months of on-time Twin Accounts payments generated positive credit activity, and her score began to improve.
Today, Fox works as a front desk attendant in two different apartment buildings, earning more than $35,000 a year. Her FICO credit score went from “insufficient” at the time she started the credit building program to a 648, which resulted in being approved for a major credit card with a substantial credit limit. Credit has become a pillar that supports her security and stability.
LISC provides agencies like JARC with funding for Financial Opportunity Centers and programs like Twin Accounts. It also has a training and technical assistance structure that includes a planning retreat for each new cohort of agencies that starts using the FOC model, site visits for peer-to-peer learning, and a website dedicated to the art and science of integrated services delivery.
A Brief History of Financial Inclusion
1970s to early 2000s
Microcredit is born when Muhammad Yunus (who would go on to win the Nobel Peace Prize 30 years later) makes a loan of $27 out of his own pocket to a group of women weavers in his native Bangladesh in 1976. The microcredit system expands beyond Asia to other regions, especially Latin America, with most service providers being nonprofit nongovernmental organizations (NGOs).
Early to late 2000s
As it becomes apparent that the financial services needs of low-income people extend beyond credit to include savings and other tools, the microfinance approach replaces microcredit, with a corresponding shift in the profile of providers. Credit-only NGOs begin transforming into regulated institutions licensed to accept deposit savings, and commercial banks begin providing services to lower-income market segments.
For all its successes, the microfinance industry still reaches only approximately 200 million people, representing about 10 percent of the global need. The concept of financial inclusion emerges from a growing recognition that specialized financial institutions aimed at low-income people are unlikely to meet the complete financial needs of the 2.6 billion people who lack even a basic bank account.
Financial inclusion seeks to connect banks, microfinance institutions, insurers, government pension programs and other financial institutions to one another—as well as to nonfinancial entities such as mobile network operators and retail outlets—in order to expand access to services more effectively than any specialized provider could achieve alone.