The Chinese government announced on March 31 that it will implement the long-awaited bank deposit insurance scheme in May, taking a key step forward in the country’s financial reform.

From May, financial institutions will be required to pay insurance premiums into a fund that will be managed by an agency appointed by the State Council, according to a State Council statement.

The scheme is designed to return bank clients’ deposits if their bank suffers insolvency or bankruptcy. The reimbursement will be drawn from the new fund in the case of the deposit being 500,000 yuan ($81,433) or less, which applies to 99.63 percent of Chinese depositors, said the statement.

The reimbursement shall be paid within seven working days, according to the deposit insurance scheme’s regulations.

Banks will pay indemnity with their own assets to those who have deposited more than 500,000 yuan.

The scheme will cover both RMB deposits and foreign currency deposits from individuals as well as companies. Both the principal and interest are under protection by the scheme.

Deposit insurance schemes are an important part of any financial safety net. The scheme has long been considered a precondition for China to free up deposit rates — the last step in interest rate liberalization.