7月28日,广州万穗小额贷款公司创始人蒋晓勤和董事长张化桥应日本野村证券公司的邀请,到香港做了题为"微型金融的远大前程"的演讲。下面是张化桥的讲稿的部分内容。

Micro-Finance, Great Expectations

Joe Zhang, Chairman, Wansui Micro Credit, Guangzhou,

A speech at a luncheon hosted for Hong Kong fund managers by Nomura Securities on 28 July 2011.

Ladies and gentlemen, thank you for the opportunity today. I will speak on two topics: the micro-finance industry in China and our game plan for success. My conclusions are as follows:
(1) In China's vast banking industry, micro-finance is a tiny and neglected segment, accounting for half a percent of total domestic credit;
(2) Demand for micro-finance is huge and fast-growing, as millions of self-employed businessmen, SMEs and consumers start to tap credit;
(3) Regulators have imposed a cap of 4x the prime lending rate on micro-finance, but the cap is not always enforced;
(4) Rules on the sector are excessive and deregulation is only a matter of time;
(5) We want to grow our own micro-finance business, as well as create a management company for the sector, much like Hilton or Marriott in the hotel sector.

(6) Our mid-term target is to become a deposit-taking village bank.

At the outset, let me introduce our company, Wansui Micro Credit. We operate in Huadu District of Guangzhou. Huadu has a population of over 1 million and an area of 961 square kilometers. We are the only licensed micro-finance firm in Huadu. Our website is www.gzwsdk.com.

Regulation as it stands today does not allow us to branch into other geographical areas. But we are not complaining about that particular rule yet. Our money is fully lent, and we have a long queue of anxious customers waiting for loans. If you gave us another Rmb2bn today, we could safely and profitably lend it out within six months.

Like most of the 3,000+ firms in our sector, we are licensed and regulated by the Finance Department of local governments (not by CBRC or the central bank). We have three outlets in three biggest towns of Huadu handling customer services. We employ 50 people (compared to the industry average of 7 employees per institution). Our paid-in capital is Rmb150m and China Development Bank has lent us Rmb75m on a long-term basis.

At present, we have lent to 1,700 customers. Our average loan size is Rmb133,000. Most of our loans go to small business as we de-emphasize consumer lending.

From day one (April 2009), our accounts have been audited by Grant Thornton. We made a profit of about Rmb5m in 2009, and a profit of about Rmb19m in 2010. This year, we will likely make a profit of Rmb27m or slightly more.

We have to overcome at least two major hurdles before we realize our full potential. First, our capital base is still far too small. The current regulatory cap of Rmb200m in Guangdong is likely to be lifted soon, as has been in some other parts of China. For months, our well-trained and highly-motivated credit officers have had little money to lend. In Guangdong, there are 126 micro-finance firms, about one per county or city district. So, our competition is manly with credit unions, pawnshops and micro-finance divisions of banks. Fortunately for us and unfortunately for the economy, we have met with very weak competition, as most lenders are only interested in big-ticket deals. Many institutions claim to endorse the micro-finance concept, but not the nitty-gritty side of it.

Secondly, we are currently allowed to borrow only 50 percent of our paid-in capital, compared to 10-20x leverage at banks. We are not allowed to take deposits or borrow from the inter-bank market or other sources. That is very restrictive and unfair to us. We will continue to lobby the government to relax this restriction.  I think deregulation will come over time, as regulators start to appreciate our good behavior and the contributions our sector is making to agriculture and SMEs.

At Wansui, we apply private-equity methods to lending. As we focus on business loans rather than consumer loans, we analyze and predict cash flows vigorously. If you walk in our office and ask for a loan to finance, say, your holiday in South Africa, we will politely ask you to go to another institution, even though you have a big house as collateral. Our approach to business is quite different from other firms. We do not just sit in the office, waiting for customers to call. We assign three or five streets or villages to each credit officer. They proactively go out and visit prospective customers. Before customers ask for a loan, our credit officer should have done a reasonable amount of due diligence. We emphasize consumer experience. Repeat customers are a very important phenomenon, so are customer referrals. As we serve repeat customers, our cost of loan appraisals declines. As our staff say, walk-in customers are, on average, a lower-quality credit.

For loans above Rmb300,000, we demand collateral (usually real estate or factory or ownership of a business), and for loans below that threshold, we demand a guarantee from a qualified person (who may own real estate or have a high-income job). We emphasize cash flows and de-emphasize collateral and guarantees. If a loan had to be repaid by selling collateral or calling the guarantor, it means our credit officers had done a bad job at credit evaluation. In the two years since opening for business, we have suffered a zero loan loss, and only a handful of all our loans (over 2,000 transactions) have had to lean on collateral or guarantors.

While our return on capital will likely exceed 20% in our third year of operation, we are far from realizing our full potential. There are seven items on my to-do list:

(1) We must overcome our capital constraint. Raising fresh equity is easy for us though we are not yet a public company, and it will get easier as the Rmb200m equity ceiling is removed in the next year. However, fresh capital is only part of the story. We want to lobby the government to allow us to borrow more from banks and other sources. So far, several banks have expressed an interest to lend us to support agriculture and SMEs but we have exhausted the 0.5x leverage ratio permitted by current rules.

(2) We want to act as a Lending Assistant to banks. Under a Lending Assistance Program, we can act as banks’ foot soldiers. We will find customers, assess credit, service loans and collect repayment on behalf the bank. For micro loans, interest rates we charge can be as high as 24 percent per annum. While our partner bank receives a prime lending rate (say, 7 percent+), we as the Lending Assistant will get the difference between 24 percent and the 7 percent. Of course, we will have to buy bad debts from the bank in addition to the administrative expenses. Effectively, our partner bank makes a loan underwritten by us, saves all the trouble associated with micro-finance. We would be delighted to roll up sleeves and do dirty work, and as our slogan goes, we are here to serve.

Several Chinese banks have set up such a program with micro-financiers in Shenzhen, Shanghai and a few other cities. We want to replicate their model. Becoming a Lending Assistant is very important in significantly boosting our capability, and improving our profitability.

(3) Loan securitization can also boost our lending and profitability. Again, several banks have conducted loans securitization with micro-finance firms so far. We are in negotiation with a couple of banks with a view to selling packaged loans to them. Hopefully, we will complete a few transactions in the next six months.

(4) Exporting our management expertise will be a triumph of dedication over fast bucks. In our industry, many firms find it much easier to make a small number of big loans, and watch grass grow than make a large number of small loans. At Wansui, we believe smaller loans are not only safer to our portfolio, but also more profitable, and more meaningful to the economy. Counter-intuitive perhaps but it is true. We are passionate about real micro-finance. And we have become very good at it. As a result, many micro-finance operators want us to manage their business. Naturally, we will be happy to oblige, for a fee.

(5) M&A opportunities are emerging in our sector, as some operators are tired of regulatory burden and seek to exit. We are pleased with these opportunities. Given our limited capital, we will seek to manage other firms for a service fee, rather than taking significant equity stakes in them, though we do not rule out equity investments in compelling cases.

(6) We are planning an SME & Agriculture Oasis Fund, the first tranche of which aims to raise Rmb1bn to invest in micro-finance operators. Being an industry leader, Waisui is well positioned to do quality control and advisory work.

(7) Becoming a village and township bank is our mid-term goal. There are tough requirements about turning micro-finance companies into village banks. Come March, we will turn three years old and will be eligible to apply for a bank license. Between now and then, the government will likely add a few new requirements, but we have always observed the highest standards in our business, and are confident of winning one of the first mandates in our sector, given many of the accolades we have been given so far. Naturally, the exact timing of such a mandate is unknown.

Micro-finance came to China only three years ago. A few years earlier, the government legalized lending among citizens. Today, there are 3,000 micro-finance operators and a few thousand pawnshops across China. The history of pawnshops is less than twenty years, and almost all of them are small, with a paid-in capital of less than Rmb100m each. In the past twenty years, the government authorized tens of thousands of guarantee companies, with the objective of improving credit environment for millions of SMEs. Essentially, they sell credit default swaps. Some have made loans despite a regulatory ban.

 

Chinese banks understand the critical importance of agriculture and SMEs, but have done little thus far to help them. The fact that free market rates of interest are 5-7x higher than prime lending rates speaks volumes about the banks’ inaction and ineffectiveness. This stems from their ownership, governance and cost structure. Farmers and SMEs complain that banks are inflexible (their loans assessment time-consuming), and demanding (when it comes to collateral, loan size, and documentation) and have a culture of avoiding trouble (No one gets the blame for losing money on China Mobile). In a period of credit tightening, SMEs and the agricultural sector suffer the most.

How can a normal business survive on a high interest rate of 24-26 percent a year - I hear you ask? Think about this: private-equity funds, hedge funds and investment banks routinely demand an internal rate of return above 25 percent, and they rarely have trouble finding target projects. Indeed, they are often spoiled for choice. If these investors cut the average size of their investment tickets to our average loan size of 133,000 from, say, 10 million US dollars, I am sure they will be swamped. Smaller loans are not only safer, but also more profitable, particularly when you are dealing with repeat customers as we do.

Think also about this: the usual interest rate banks globally charge credit card balances is 30-40 percent, irrespective of economic cycles. They never have a shortage of willing takers for their money.

Our usual micro-finance customers are small businesses neglected by banks, and even by credit unions. We are often their only place to go to. Interest rates are not the issue, but the availability of money is. If we charge customers 25 percent pa for our money, and they recycle the money three or four times a year, they find the interest rate very affordable, particularly considering the tedious procedure, the long wait period, the uncertainty, and even extra expenses associated with bank borrowing.

In terms of corporate governance, Wansui Micro Credit makes me very proud. About a year ago, I became interested in micro-finance and travelled around China to do research, looking for investment opportunities. Having visited over 60 such firms in various cities, I decided Wansui was the most outstanding in terms of management depth, and technical expertise. In late June, a few days after I approached Wansui to invest my personal money with the firm, I was offered the chairmanship. I was thrilled. Wansui's founder and then chairperson, Ms. Jiang Xiaoqin, has kindly agreed to stay on as Head of our Supervisory Board. I am fortunate to have her continued support. I worked at the central bank in Beijing in the 1980s, and then at Hong Kong-based investment banks for 15 years, 11 of which at UBS.I look forward to working with you to make a contribution to the Chinese micro-finance industry, doing well by doing good.