Although foreign players are relatively new to rural banking, they have an edge on their domestic counterparts: They are happy, indeed obliged, to go small.
"Local banks would not deal with the type of loan application [we do]," said Elton W.K. Lee, executive vice president and head of rural banking for HSBC.
Foreign banks are not permitted to set up rural outlets as branches under their locally incorporated banking entity. Each rural bank must be set up as a separate entity and no single loan can exceed 5% of its registered capital. This means HSBC’s rural bank in Suizhou, Hubei province, which has a registered capital of US$5.85 million, is subject to a loan cap of US$292,500. A domestic commercial bank generally wouldn’t consider lending less than about US$730,000 to a company.
The small loans offered by foreign banks also come with a certain amount of leeway. According to Zhang Kai, director of franchise development at Citi China, most domestic players only offer loans with a tenure period of one year. The interest on the loan is paid in installments with the principal paid in one large balloon payment at the end. Citi, however, offers unsecured loans with a tenure of 12-48 months and secured loans with a tenure of five years.
HSBC at present does not offer flexible tenure loans, while a spokesperson for Helingeer Standard Chartered Village Bank, Standard Chartered’s rural banking operation, said loan services would be launched in the near future.
Citi does share one feature with HSBC: its risk management system. Both banks use cash flow analysis to not only determine whether a farmer is a suitable candidate for a loan, but also to decide repayment schedules. Domestic banks simply manage risk by allocating loans for a fixed period.
Citi’s Zhang also points to customer service as a key differentiator.
"A lot of local customers will feel that they have to know somebody who works in the local bank to get a loan," she said. "Our services are very transparent, and we have much faster turnaround for loan applications. We sit down with customers and help them understand their cash flow needs and their payment abilities and that’s very much appreciated."