Dec 03, 2012 01:55 PM

Rivaling Banks, Alibaba Offers Click-On Credit

Climbing fast in a market dominated by China's bricks-and-mortar banks is a maverick financier that's building business not in cities but in cyberspace.

The maverick is Alibaba Group, an e-commerce giant that started a small-loan business as a sideline in 2007 while cooperating with two large banks. It broke away in 2010 after securing a small loan operating license from the central bank and has been winning market share ever since.

The private conglomerate's Aliloans loan division doesn't publish financials. But a source said the firm loaned more than 26 billion yuan to more than 129,000 small and family-owned businesses through company-related website platforms between April 2010 and July 1.

Daily income from interest on these loans has reportedly risen to more than 1 million yuan – a level on par with earnings at a typical regional bank in China.

Alibaba's loan business is "a significant initiative that may turn the financial industry upside down," said Xiong Yan, chairman of China Beijing Equity Exchange, an asset and equities transaction platform.

Alibaba has divided the lender into separate subsidiaries based in Zhejiang Province and Chongqing. Each offers clients so-called Aliloans.

The subsidiaries have a combined registered capital of 1.6 billion yuan, which means under China Banking Regulatory Commission (CBRC) rules that the Aliloans venture can borrow up to 800 million yuan from banks, giving the nationwide operation the capacity to lend up to 2.4 billion yuan.

And the lender benefits from a lot more than cash flow: Its loan officers can access valuable information about Alibaba clients, which allows for easy and fast credit checks. Database access also helps the lender control default risks and process loan applications rapidly.

Alibaba has financial data on nearly 80 million registered users who use its B2B cyberspace platform. It's also stored information on some 145 million users of its affiliate e-shopping service Taobao, according to a company insider.

Analysts familiar with the loan business say Alibaba's database may be even better than the credit information system run by the central bank on behalf of the nation's traditional bankers.

Parting Ways

Alibaba's loan executives and bankers working for their original partners – China Construction Bank, and Industrial and Commercial Bank of China – never really saw eye-to-eye.

According to an Alibaba source, the cooperative venture's business set up in 2007 could have been much larger if the banks had been more flexible.

The banks issued a total of about 12.8 billion yuan worth of small-business loans to Alibaba clients during the first two years of the venture. But that was after "the banks denied 99 out of 100 loan applicants (Alibaba) recommended," the source said.

Most applications were denied because "credit records of small and family-owned businesses tracked by Alibaba's e-commerce system are not recognized by the banks," the source said. "They still operate in an old, rigid way, guided by philosophies quite different from ours." 

Some industry watchers doubted Alibaba could succeed without the banks after it broke away in June 2010. And some say the company may have broken CBRC rules, arguing it could not have handed out so much money so fast – 26 billion yuan worth of loans written in just 26 months – without exceeding regulatory limits.

Zhang Luqiao, a lawyer at Winners Law Firm in Tianjin, said Aliloans may have violated the regulator's rule limiting it to releasing no more than 2.4 billion yuan for all loans at any one time.

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