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A main objective of this paper is to examine the role of big data in facilitating the access to financial products for economically active low-income families and micro-enterprises in China

Big data’s role in expanding access to financial services in China

Int J. Information Management, no. 3 (2016): 297-308

Cited by: 32|Views39
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Abstract

While China's internet-only banking industry is currently small, it has potential to cause a major disruption in the Chinese financial market.Various categories of personal financial and non-financial information are being used as proxy measures for a potential borrower's identity, ability to repay and willingness to repay.The main reason...More

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Introduction
  • Compared to industrialized countries, developing countries such as China exhibit lower penetration of financial services (Honohan & King, 2009).
  • General consumer and business finance companies and microcredit organizations have had limited success in serving the needs of these groups cost-effectively and sustainably.
  • Lending in the country is disproportionately oriented toward powerful economic and political interests such as statecontrolled companies (Kshetri, 2011).
  • It was reported that 89% of SMEs in China face difficulty in satisfying banks' requirements in order to get loans (Jing, 2014).
  • Small borrowers often tend to lack sufficient collateral, which is required by most traditional Chinese banks (Wildau, 2015)
Highlights
  • Compared to industrialized countries, developing countries such as China exhibit lower penetration of financial services (Honohan & King, 2009)
  • In light of the above observations, a main objective of the present paper is to examine the role of BD in facilitating the access to financial products for economically active low-income families and micro-enterprises in China
  • A potentially valuable research design to test the conceptual framework via multiple case studies would be to sample organizations that have been identified as engaging in increasing access to financial services for low-income families and micro-enterprises in emerging economies
  • The above discussion indicates that a main reason why low-income families and microenterprises in emerging economies such as China lack access to financial services is not because they lack creditworthiness but merely because banks and financial institutions lack data, information and capabilities to access the creditworthiness of this financial disadvantaged group
  • In addition to legitimacy from the government, securing legitimacy in the eyes of their customers is important for China's BD companies
Methods
  • The approach of this study can be described as theory building from multiple case studies, which is becoming increasingly popular in social science (Eisenhardt & Graebner, 2007).
  • This study mainly relies on archival data which is among a variety of recognized data sources for case studies (Eisenhardt & Graebner, 2007).
  • As suggested by prior researchers (Golder, 2000; Mason, McKenney, & Copeland, 1997), the authors analyzed the sources of evidence as well as the evidence by using the criteria developed by Gottschalk’s (1969) such as time elapsed between events and reporting, openness to corrections, range of knowledge and expertise of the person reporting the events, and corroboration from multiple sources
Results
  • A study indicated that, for a transaction involving US $23, branchless banks cost 38% less than commercial banks and 54% less than informal money transfer channels (McKay & Pickens, 2010).
  • Its nonperforming loan ratio was reported to be less than 1% (Cui, 2013).
  • A caixin.com article quoted a bank executive saying that up to 95% services being offered at branches can be handled online (Hongyuran et al, 2015)
Conclusion
  • Discussion of the cases

    So far, BD companies' share is vanishingly small in China's lending market, which is estimated at US $4 trillion (Bloomberg.com, 2015).
  • Chinese banks' interest in acquiring customer data is an encouraging sign that may indicate that lending decisions are likely to be made based on economic fundamentals rather than by political considerations.
  • They have witnessed various levels of success and failure.
  • It is important to develop a more appropriate way of handling customer information
Tables
  • Table1: Some indicators related to the market sizes of computer-based information technologies in China
  • Table2: Some indicators related to the size of consumer data held by China’s digital conglomerates
  • Table3: Relevance of BD dimensions in enhancing access to financial products for economically active low-income families and micro-enterprises in emerging economies
  • Table4: Functions of different categories of financial and non-financial information
  • Table5: Business models used by BD companies in enhancing access to finance
  • Table6: The role of BD in reducing information opacity and transaction costs
Download tables as Excel
Funding
  • A study indicated that, for a transaction involving US $23, branchless banks cost 38% less than commercial banks and 54% less than informal money transfer channels (McKay & Pickens, 2010)
  • Its nonperforming loan ratio was reported to be less than 1% (Cui, 2013)
  • A caixin.com article quoted a bank executive saying that up to 95% services being offered at branches can be handled online (Hongyuran et al, 2015)
Study subjects and analysis
people: 70
A vendor's willingness and ability to repay loans are assessed based on information such as the borrower's credit rating and customer reviews. As of 2014, more than 70 people worked on developing models for ODPS in the small-loan business. All decisions related to granting a loan are made by the system without human intervention (Li, 2014)

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