Responsible consumer finance to ease risks

Experts: Adherence to standards will expand coverage, maintain stability

Financial industry officials and experts highlighted the significance of responsible consumer finance to better control risks and maintain financial stability at a recent financial inclusion forum.

"International and domestic experience shows that consumer finance is a double-edged sword. If we let it develop in a freewheeling style, it may trigger risks and endanger financial stability," said Yu Wenjian, director of the financial consumer protection bureau of the People's Bank of China, at the 2019 International Forum for China Financial Inclusion in Beijing last week.

Citing the example of loans offered by online lending platforms to college students that were banned because of concerns over exorbitant rates, violent debt collection and financial scams, Yu said applying digital technologies to consumer credit irresponsibly may lead to financial risks, widen the spread of risks, and seriously infringe upon consumer interests.

However, he added, if financial institutions and regulators adopt the mentality of responsible finance and ensure that the development of consumer finance abides by standards, they will be able to achieve the major goals of financial inclusion, namely extending the coverage of financial services and increasing the accessibility of and satisfaction with financial services.

Liu Xiaochun, vice-president of the Shanghai Finance Institute, said, "China should not take promoting the development of consumer credit as an instrument for macroeconomic adjustment ... If the household debt-to-income ratio goes beyond the borrowers' repayment capacity, it may not only trigger risks in the banking system but also cause a sudden collapse and contraction of society-wide economic demands, which will put the country's economic growth at greater risk."

He advised financial regulators to respect the wishes of parents who eventually pay off loans to their college-aged children because the parents have their own educational philosophy and may not want their children to spend money extravagantly with easy access to loans. Not to mention that to satisfy the students' desire for consumption by lending to those whose families are struggling financially will add insult to injury.

Consumer finance risk is on the rise due to several factors, including a growing trend of borrowing from multiple sources, financial irregularities, and increasing economic uncertainties, experts said.

As of the end of the second quarter, outstanding credit card loans overdue for six months increased by 5.19 percent quarter-on-quarter to 83.88 billion yuan ($11.86 billion), according to the People's Bank of China, the country's central bank.

The Beijing Office of the China Banking and Insurance Regulatory Commission issued a notice on Saturday, requiring banks and fintech companies to step up risk management of their cooperation in online lending by strengthening new client risk assessment, setting credit quotas appropriately, and preventing the risks of overborrowing.

Chen Huan, chief strategy officer of CreditEase, said the Chinese fintech conglomerate noticed in the second half of 2018 that consumer lending risks were starting to increase. The company made adjustments accordingly, such as controlling risks associated with client behavior to seek credit from multiple sources and rejecting certain clients whose risks are higher.

"This is challenging considering the difficulties to learn the overall risk information of borrowers without a unified credit data platform. Therefore, promoting the inclusion of social financing information in the credit system will be a major step forward for the financial infrastructure construction in China," said Chen on the sidelines of the forum.

Bei Duoguang, president of the Chinese Academy of Financial Inclusion at Renmin University of China, urged all financial inclusion service providers to advocate responsible finance and implement the principles of protecting and empowering their clients.

To build inclusive, healthy and responsible finance, financial service providers should meet higher requirements to help consumers improve their habits for saving and consumption, as well as enhance their credit awareness, financial capability and ability to mitigate the effects of financial fluctuations, according to a recent report issued by the Chinese Academy of Financial Inclusion.

During the process, financial education is crucial, said Marco Ma, vice-president of Visa. It is about educating all the ecosystem stakeholders, including consumers and service providers, to develop a healthy foundation of responsible finance and responsible consumers through building their financial knowledge and understanding of risk, Ma said.