In late 2016, the Agricultural Bank of China (ABC) was the fourth largest bank in the world and ranked 29th among the Fortune Global 500 companies. Established in 1951, ABC went public in 2010. It was the world’s biggest ever initial public offering at the time. ABC is pivotal in addressing sannong issues (three rural issues relating to agriculture, rural areas and farmers) and its social responsibility is to provide financial services for rural development. Despite its “rural mission,” ABC has ventured into urban commercial banking both within China and overseas. In rural China, ABC provides an inclusive finance package, focusing on three areas: basic financial services for farmers, financial poverty alleviation, and loans to rural households. It aims to serve a huge and widely dispersed rural population (589.73 million people as at the end of 2016). Compared to other regular financial businesses, providing credit and deposit services for farmers is confronted by three main obstacles: first, high service cost. Most farmers live in remote rural areas with poor transport connectivity. Commercial banks must incur substantial financial and time costs for onsite pre-lending checks and post-lending management. Second, high business risk. Information asymmetry between banks and farmers is aggravated by the absence of a sound rural credit system and the lack of credit information on farmers. Third, farming households are unable to provide lawful, effective and full loan guarantees. Most farmers do not have assets to serve as property or security interest that financial institutions require. Despite the unique difficulties, ABC’s sannong business has huge growth potential. Continued rural reforms in China provide the impetus to boost demand for rural loans and to improve the rural financial environment.
This case illustrates the Chinese financial ecosystem involving banks, clients, and the government. It describes the business model of the Agricultural Bank of China, one of the largest banks in the world, created by the Chinese State to finance the farming sector. The case details the products and services that ABC provides to small farmers in China. This is a sector without access to technology nor to financial products, so it has to be served in an innovative way.
Promoting inclusive finance: Agricultural bank of China
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