Xu Ling, East Beijing: Self-discipline is the cornerstone of the sound development of consumer finance

category:Finance
 Xu Ling, East Beijing: Self-discipline is the cornerstone of the sound development of consumer finance


If the funds of financial institutions can not be used in consumer circulation, consumer finance will lose its value, and it is difficult for finance to serve the real economy. This is why the state has repeatedly declared that consumer finance should have a real consumption scenario and designated loan purposes.

On August 27, the General Office of the State Council issued Opinions on Accelerating the Development of Circulation and Promoting Commercial Consumption, and put forward 20 policies and measures to stabilize consumption expectations and boost consumer confidence. Article 19 proposes to increase financial support. Financial institutions should be encouraged to innovate consumer credit products and services and promote the development of specialized consumer financial organizations. Financial institutions are encouraged to provide credit support for residents to purchase green intelligent products such as new energy vehicles, green intelligent household appliances, smart homes and water-saving appliances, and to increase financial support for new consumption areas. That is to say, consumer finance without specific loan uses is not included in the encouragement scope of the Peoples Bank of China and the Banking and Insurance Regulatory Commission.

According to the data of the National Bureau of Statistics, in July 2019, the total retail sales of social consumer goods were 33073 billion yuan, an increase of 7.6% over the same period last year. According to central bank data, as of December 2018, the balance of personal consumption loans of financial institutions in China was 37.79 trillion yuan, an increase of 19.90% over the same period last year. Although the level of social consumption is growing steadily, the growth rate of personal credit is still not matched, which shows that a large number of personal credit has not really combined with the consumption scenario.

However, in recent years, with the emergence of various financial innovative products, the boundary of consumer finance has been generalized, such as micro-cash loan business. At present, many institutions in the market seem to be doing consumer finance, but in fact they are doing micro-cash loan business under the guise of consumer finance.

Now, we see some personal lending disorder, after lending, not for reasonable consumption, but to gamble, lottery, investment, which has caused a series of social problems. The problem here is that lenders dont care whether the loan is used for consumption or not. The so-called personal loan has turned into excessive monetary disbursement, which not only cant enter the real consumption field related to the real economy, but also brings irrational consumption impulse to individuals, especially young people. Therefore, the author believes that the core problem leading to the chaos in the personal loan industry is that the boundary of consumer finance has been generalized, which is divorced from the essence of consumer finance.

Loans out of the consumer scenario will inevitably lead to increased risk. Therefore, the generalization of personal credit leads to the need for institutions to cover higher risks with higher pricing. What we are pursuing is not to reduce the capital cost and risk of the whole industry, but to push it up on both sides, resulting in a large number of high-interest currencies idling, which is a very dangerous trend.

We should attach great importance to the high interest rates behind excessive lending to cover high risks. In some credit products, the nominal interest rate is less than 36%, but if compounded, it may reach 70%-80%, plus haircut and additional loan service fees, the overall rate will even exceed 100%. It is impossible for such high-cost funds to enter the consumption field. Users must be used to engage in high-risk business. The so-called profitability of enterprises under high risk is actually the time mismatch between risk and return. Because the profits of borrowing and lending appear at the present time, and the risks will not show until several years later, and even some lending institutions continue to roll over for users, constantly postponing the loss that is bound to come. So the current profits are not the profits of these institutions in the whole life cycle. There is a serious time mismatch in the whole market.

While a large number of personal credit companies continue to increase advertising exposure and compete for users, we also see that most listed banks are actively optimizing the loan product delivery strategy, properly raising the threshold of credit card and loan delivery, and promoting the target audience to move up. One to the left, one to the right, behind the choice reflects the two types of institutions completely different user positioning: do I lend money to qualified borrowers?

The idea of Inclusive Finance is to cover a wider range of eligible borrowers at lower interest rates. And some credit companies are directly targeting unqualified borrowers who have poor repayment ability and high demand for money. He raised the interest rate to more than 100%, betting that at least 50% of the people would pay back the money. The motivation behind this user positioning is lack of self-discipline. The most important ability of the financial industry is KYC, that is, to know your users, and when institutions no longer want to know their users, but only care about how high the interest rate can be used to release funds, that is to harvest in the name of universal benefit.

The key to the healthy development of consumer finance is industry self-discipline. In order to develop healthily, it is imperative for the consumer finance industry to strictly self-discipline, establish a prudent culture and maintain a sense of fear of risk. However, the market is profit-seeking, and human nature is greedy. How to internalize non-profit-driven self-discipline into an industry code? The author believes that the requirement of self-discipline should be transformed into the requirement of self-protection.

For users, fully understanding the loan risk is an important factor to help them self-restraint. When credit card business started, banks often sued malicious overdrafts. After several major incidents of education, the number of malicious overdrafts in the market has been slowly decreasing. Many Lao Lai actually did not intend to cheat, but he did not realize that the interest rate was so high when he borrowed money. As mentioned earlier, interest rates of about 30% can reach 100% or even higher after compounding and additional charges. Because the borrower did not know the real interest, he lost his self-discipline. Therefore, lending institutions should fully and completely disclose the cost of borrowing, so that borrowers can fully understand the cost of non-self-discipline, so as to stimulate their self-protection mechanism. The same is true for businesses. If the enterprise clearly knows that the loan interest rate can not exceed a certain red line, otherwise it will face a series of penalties and losses, the enterprise will naturally abide by the principle of self-discipline. According to the development track of developed economies in Europe and the United States, Chinas consumer finance will further develop, but we can not let inferior currencies drive out good currencies and let enterprises lend cash in the name of consumer finance, otherwise the whole market will pay for it. It is gratifying that regulation is speeding up top-level design in order to further establish a culture of self-discipline and restraint and escort the rational development of the industry. Source: Author of China Financial Journal: Xu Ling Responsible Editor: Zhong Qiming_NF5619

For users, fully understanding the loan risk is an important factor to help them self-restraint. When credit card business started, banks often sued malicious overdrafts. After several major incidents of education, the number of malicious overdrafts in the market has been slowly decreasing. Many Lao Lai actually did not intend to cheat, but he did not realize that the interest rate was so high when he borrowed money. As mentioned earlier, interest rates of about 30% can reach 100% or even higher after compounding and additional charges. Because the borrower did not know the real interest, he lost his self-discipline. Therefore, lending institutions should fully and completely disclose the cost of borrowing, so that borrowers can fully understand the cost of non-self-discipline, so as to stimulate their self-protection mechanism.

The same is true for businesses. If the enterprise clearly knows that the loan interest rate can not exceed a certain red line, otherwise it will face a series of penalties and losses, the enterprise will naturally abide by the principle of self-discipline. According to the development track of developed economies in Europe and the United States, Chinas consumer finance will further develop, but we can not let inferior currencies drive out good currencies and let enterprises lend cash in the name of consumer finance, otherwise the whole market will pay for it. It is gratifying that regulation is speeding up top-level design in order to further establish a culture of self-discipline and restraint and escort the rational development of the industry.