MICROFINANCE PAPER WRAP-UP: “China’s Long March to a Cashless Future: Regulatory Responses to DFS Innovation and the Challenges of Rural Distribution,” Published by CGAP

By Patrick Meagher, published by CGAP (Consultative Group to Assist the Poor), December 2019, 24 pages, available at: https://www.findevgateway.org/sites/default/files/publication_files/dfs_distribution_china_final_dec_2019.pdf

Over the last several years, China has experienced a large-scale migration of financial services to digital platforms. As these digital financial services (DFS) have become available in typically underserved rural areas, financial access has risen significantly. Mr Meagher examines the platforms created by Chinese e-commerce companies – such as Alibaba – as well as regulatory changes and the lessons learned from this expansion, especially in regard to financial inclusion in rural areas, where cash is used the most.

Based on his analysis, Mr Meagher argues that regulators in China should allow more experimentation outside of the traditional banking system. For example, this could allow banks to completely digitize their processes, using cloud-based services to improve access to financial services. Mr Meagher also notes that in order to expand a cashless system, companies must increase the number of service points to reach the relatively high proportion of cash users in rural areas. Lastly, the author cites potential risks, such as the manipulation of customer data for surveillance and other purposes by commercial and government entities.

By Anna Gravois, Research Associate

Sources and Additional Resources

CGAP paper
https://www.findevgateway.org/sites/default/files/publication_files/dfs_distribution_china_final_dec_2019.pdf

CGAP homepage
https://www.cgap.org

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