Jun 27, 2016 03:49 PM

Pilot Program Lets Banks Fund Tech Start-Ups through Direct Investment

(Beijing) – Three banks in a pilot program aimed at boosting lending to China's vibrant but underserved private sector said that each plans to set up a separately capitalized subsidiary that will channel money to companies by taking direct equity stakes in them, much the way that traditional venture capital works.

The pilot program allows banks to invest directly in companies by taking their shares, rather than providing traditional loans that must be repaid. That way the pilot banks can sell the shares to help recover the funds they invest. The practice is generally prohibited by China's banking laws, and thus needs the central government's special approval.

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