As an economic term, personal credit has been re-evaluated and recognized, thanks to the introduction of personal consumption loans. In order to stimulate consumer demand, the People's Bank of China issued "Guidelines on Carrying Out Personal Consumption Credit" in March 1999. Taking this as an opportunity, various commercial banks actively organized and planned to vigorously promote consumer credit business across society. From 1999 to the present, various commercial banks have launched numerous projects such as personal housing loans, car loans, student loans, renovation loans, and large durable consumer goods loans. However, beneath a seemingly bustling surface, people found that except for one or two types of loans, the initiation of other projects was rather slow, often described as "well-received but not well-purchased," leading to sluggish development of personal consumer credit. What is the reason? We find that the absence of a personal credit system in our country has become a bottleneck for the development of personal consumer credit. The blank space in the personal credit system has caused widespread information asymmetry during the implementation of consumer credit, resulting in inefficient allocation of credit supply and demand, thereby seriously constraining the development of consumer credit.
One, the absence of a personal credit system has become a bottleneck for the development of personal consumer credit
The personal credit system refers to a system that evaluates an individual's credit rating based on their household income and assets, previous borrowing and repayment, credit overdrafts, penalties and litigation when bad credit occurs, and records and archives it in real-time so that credit suppliers can decide whether to provide credit and how much credit to provide. It allows individuals to not only pay based on labor remuneration but also obtain payment capability through credit means. It is an important part of the overall social credit system and a solid foundation for the operation of the market economy. However, in our country, the personal credit system is almost non-existent, thus triggering a series of problems, especially in the development of bank consumer credit. It is difficult to control the post-event risks of consumer credit, forcing banks to focus a great deal of effort on risk control before and after loan disbursement. Due to the lack of a personal credit system, banks cannot efficiently and accurately obtain personal credit reports through the personal credit system. Faced with loan applications from customers, the first thing to do is to conduct strict credit reviews on the customers. Conducting strict credit reviews on all applicants, even those with good credit, results in a significant waste of bank resources and inefficient use. Complicated reviews and audits severely affect the efficient operation of banks. The high cost of information acquisition by banks is passed on to consumers, raising the transaction costs of consumer credit. At the same time, banks use their own evaluation systems to review customers, and due to the limitations of their own rating systems, there are often discrepancies between the investigation results and the actual situation of customers, leading to the loss of good customers and the inclusion of bad ones. The absence of a personal credit system and the limitations of the bank's own evaluation system lead to the misconception among bank account managers that "personal credit is unreliable, and only property collateral is reliable." Banks overly rely on property collateral when issuing loans. Property collateral is an effective mechanism to mitigate credit risks, but collateral is only a post-event risk mitigation measure. Collateral is a means, not an end. Moreover, due to the lack of corresponding social security measures, courts find it difficult to make judgments forcing borrowers to relocate when they are unable to repay loans. The "Regulations of the Supreme People's Court on Seizure, Detention, and Freezing of Property in Civil Enforcement by the People's Courts" clearly states: "Residential houses necessary for the living of the executed person and his or her dependents may be sealed by the people's court, but shall not be auctioned, sold, or used to offset debts." Therefore, there are significant issues in the disposal of collateral. Furthermore, even if banks might recover loans through the disposal of mortgaged properties, the process itself greatly reduces the efficiency of financial operations in banks. The difficulty in controlling post-event risks in consumer credit triggers "cautious lending" by banks. Facing complicated loan procedures, stringent loan conditions, and various guarantees, pledges, insurances, and reviews, potential borrowers can only sigh and retreat. This leads to the exit of many consumer credit demanders. Banks lose a large number of customers, including those who abandon loans due to high transaction costs, those screened out by banks due to insufficient credit information, and those who withdraw due to complex loan procedures and stringent loan conditions.
Two, the establishment of a personal credit system is a breakthrough for the development of personal credit
As mentioned earlier, the current personal consumption loans in our country face the "bottleneck" constraint of the personal credit system, and the development of personal consumer credit urgently requires the establishment of a personal credit system. 1. The establishment of a personal credit system can reduce the cost of pre-event risk control for banks, promoting the improvement of operating benefits and effective expansion of operating scale in our banking industry On one hand, banks can divide different credit levels based on the personal credit assessment data provided by credit report intermediaries through credit scoring results. Banks can decide whether to lend, the loan amount, loan term, interest rate, and repayment method accordingly, improving the scientificity, accuracy, and efficiency of consumer credit decision-making. Moreover, banks obtain the credit records of loan applicants from credit intermediaries, and the professionalization and scale effect of personal credit intermediaries in information acquisition will inevitably result in significantly lower final information acquisition costs compared to relying solely on their own resources. On the other hand, due to the reward and punishment mechanism of the credit system, the "moral hazard" of consumers is effectively reduced, making "credit mortgage" more effective than unsecured property mortgage: Banks, trusting the reliability of personal credit, can break away from excessive reliance on property mortgage. Banks can rid themselves of the "pawnshop" mentality, improve the efficiency of financial operations, simplify the procedures for consumers to realize credit consumption under effective risk control, making credit consumption a more convenient and widely accessible consumption method. 2. Establishing a complete personal credit system helps to improve the operational efficiency of financial capital Currently, in developed Western countries, personal consumer credit accounts for more than 30% of total credit. Whether or not one can obtain a consumer loan and installment payment discount largely depends on the existence and quality of one’s personal credit record, which is considered a “passport” for survival and success in society. By learning from foreign advanced investment concepts and complete institutional systems, establishing our country's personal credit system and vigorously promoting consumer credit business will fully stimulate the latent demand of residents, inevitably promoting the establishment of a benign market between commercial banks and consumers. This is beneficial for commercial banks to optimize asset structures, increase revenue, prevent financial risks, and facilitate the alignment of our commercial banks' consumer credit sector with international banking, greatly enhancing the competitiveness of our commercial banks.
3. A sound personal credit system can provide a good basic guarantee for taxation, finance, and consumption services Once the personal credit system is perfected, the government's welfare policies, the formulation of market transaction regulations and maintenance of order, the collection of personal income tax, the taxation of business income, and the smooth operation of the entire society require a personal credit system. Thus, when the personal credit system is recognized by society, it can establish a good market operation mechanism and promote the comprehensive development of personal consumer credit business and the national economy. This is a systematic project related to all levels of society.
Three, drawing on international experience to accelerate the establishment of our country's personal credit system
In developed countries, the personal credit system has a history of 150 years. In the United States, every economically active person has a Social Security number and a corresponding account. This account records every detail of their income, taxes, loans, and repayments. After accepting a customer's loan application, banks query their credit status through a unified networked dedicated network to decide whether to grant a loan, whether to offer discounts, whether to closely monitor their economic credit status, and even take preventive measures. Individuals must present and register this number when applying for jobs, receiving salaries, renting apartments, or paying taxes as a backup credit check. Many people value their reputation more than life itself, striving to avoid being blacklisted. In the face of the severe challenges of the international financial industry, establishing a personal credit system in line with the trends of the times will inevitably promote the alignment of our consumer credit business with international banking. The call for establishing a personal credit system is growing louder, but the construction of our credit system remains challenging, especially in the following areas:
1. Establish a personal credit file registration system Build an inter-bank personal credit information network and initially form an information sharing mechanism among banks. Various commercial banks can utilize their own computer networks, based on original customer records, using credit card customer data as the foundation, along with personal consumer credit data and real-name savings customer records, to establish a system-wide personal credit information database and achieve information sharing among departments. Commercial banks can establish an inter-bank personal credit information network with the central bank as the exchange center to ensure clear credit for customers interacting with banks. Establish inquiry databases related to personal credit involving industrial and commercial, taxation, insurance, and public security departments, gradually forming a personal credit inquiry network shared with banks.
2. Establish a scientific credit evaluation index system With a gradually improving personal credit archive, personal credit evaluations no longer face the problem of "having no rice to cook." However, each commercial bank and personal credit rating institution has its own evaluation standards, and the design of the credit evaluation index system is not entirely reasonable or complete. The comparability between different institutions is weak, and sometimes the evaluation results differ greatly, failing to accurately and objectively reflect the true situation of personal credit. This hinders the nationwide promotion of the personal credit system and makes it difficult to align with international standards. Foreign countries adopt the "5C" principle for personal credit evaluations, namely character (Character), capacity (Capacity), capital (Capital), collateral (Collateral), and business environment (Condition of Business). However, due to differences in economic development levels and cultural backgrounds, copying these principles directly would likely cause significant deviations. Currently, what needs to be done is to collect and organize China's consumer credit data, statistically validate and adjust the "5C" model, and establish a set of personal credit evaluation index systems suitable for China's national conditions.
3. Establish a legal environment conducive to the development of personal credit The establishment of China's personal credit system should reasonably operate within the framework of laws, standardize operations, and develop healthily. Personal credit data collected in personal credit files belong to personal privacy, and the state should clearly define the collection of personal credit data, the evaluation of personal credit scores, and the use and collection of personal credit data. Regulations should be established to penalize various violations and infringements on citizens' privacy rights. The state should soon promulgate and implement laws and supporting regulations for the personal credit system, legally defining aspects such as personal account systems, personal credit records and transfers, personal credit file management, evaluation, disclosure, and use of personal credit ratings, and the rights, obligations, and behavioral norms of personal credit subjects to ensure the standardized development of the personal credit system. Amend existing relevant laws and regulations to prepare for the opening of personal credit data and punish behaviors providing false data; quickly introduce new laws regarding the openness and use standards of credit data; establish laws or regulations mandating that departments, enterprises, and citizens legally provide truthful data and set strict penalties for providers of false data.
4. Establish a personal credit management system We need to truly establish a unified, efficient, objective, fair, and service-oriented personal credit management system, i.e., establish an authoritative personal credit management agency to coordinate planning and coordination, enabling the early establishment of China's personal credit system and management system. Especially to avoid moral, credit, and default risks of loan individuals, a risk warning mechanism should be established, tracking and monitoring through a series of interconnected monitoring indicators to always grasp the dynamics of borrowers.