From Post Office to Microcredit

Prudence, determination, and pragmatism mark the path towards a new postal saving system, aimed to become a financial giant.
The process started in 2007, when the Postal Saving Bank of China (PSBC) was separated – but still controlled – by China Post and established as a state-owned limited company, providing banking services throughout the country. The reform paved the way to convert a traditional money collection, bastion of a rural society, into a more lucrative activity.
Before the reform, PSBC used to transfer the collected money to the People’s Bank of China. The central bank paid a modest interest to have an endless flow of money generated by this huge national saving machine. It was one of the most known mean to secure funds for massive investments. In 2008 the powerful China Banking Regulatory Commission (CBRC) suggested PSBC to explore the new frontier of microcredit. It was a sudden breakthrough: in August 2010 the borrowers were already 3.7 million.
The success convinced the China Post Group to insist by releasing a new credit, worth 10 billion RMB, to its controlled PSBC. The loan will increase the liquidity and at the same time will make PSBC fully operational. Rules require for banks a Car, Capital adequacy ratio, of at least 10%, fixing a ratio between deposits and loans. The percentage reaches 11.5% for larger banks. Prior the money injection PSBC’s Car was a mere 8%. Now it is ready to venture in a territory still unveiled in China, after its explosion in countries like India and Bangladesh.
Beijing knows the experiment there was very controversial. A noble aspiration became a nightmare for thousands of farmers unable to repay their debts. The challenge is to provide dynamism to the economy without social tensions. For this reason the interest rate for the microloans is fixed at 13.5%, higher than usual but much lower compared to other countries. To avoid exacerbation and unrest, China first invested on new professional figures, ready to provide advice with competence and integrity. Repayment is expected to be clean and smooth.
PSBC is the main actor on the scene, since it knows the huge territory and has a network of infinite potential customers. In addition, bad loans are not a problem to face. The assets should be sufficient to over-compensate the lack of experience, while the murky relations in the system should be dissolved through a scientific approach. In conclusion it is a calculated risk, to be assessed in order to allow the circulation of the nation’s huge saving, still very high for a modern society.