Caixin
Feb 27, 2017 05:06 PM
FINANCE

Online Microlending Becomes Latest Regulatory Target

(Beijing) — The China Banking Regulatory Commission (CBRC) has warned local authorities to exercise caution when handing out licenses to microfinance companies — an advisory that comes ahead of the publication of new national guidelines and regulations aimed at beefing up supervision of the sector.

Microlending has become a hot new area in internet financing, and although it’s far smaller than peer-to-peer (P2P) online lending, companies that include e-commerce giant Alibaba Group Holding Ltd., real estate and entertainment conglomerate Wanda Group, and travel services site Ctrip.com International Ltd. have won licenses from local governments to grant low-value loans to individuals and small companies.

Local authorities have been allowed to award microlending licenses to companies within their geographic jurisdictions as a way of helping borrowers traditionally overlooked by the main commercial banking sector. But the rapid growth of the internet has encouraged many companies to move their operations online. That has allowed them to expand into other regions which, under current regulations, puts them outside the supervision and control of the local government that granted the license.

Concerned that such expansion might lead to deterioration in asset quality and open up yet another form of regulatory arbitrage for companies to exploit, the commission is now working on a set of rules that will be applied nationwide, Li Junfeng, director of the CBRC’s inclusive finance department, told a meeting of the China Micro-credit Companies Association last week. Until the regulations are announced, local governments should be prudent when giving out licenses to companies who offer credit to borrowers online, Li said.

“It’s come to our attention that some of these online microcredit companies don’t really have a core customer base and don’t have internet technology or big data behind them,” he said. “They’ve just hung up a sign and started blindly offering their services.”

There were 78 microlending companies in 10 provinces and municipalities by the end of last year, according to Shanghai Yingcan Business Consultancy Co. Ltd., an internet finance consultancy company. Guangdong province in southern China topped the list with 28 firms, following by the southwestern municipality of Chongqing with 17 and Jiangsu province on the east coast with 11.

So far, authorities in Shanghai, Jiangxi, Guangzhou, Jiangsu and Chongqing have issued specific regulations for companies offering microloans via the internet, but they do not prohibit the firms from giving loans to borrowers outside the area where their businesses are registered.

Contact reporter Chen Na (nachen@caixin.com)

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