Credit reference platform gets nod

PBOC gives green light to personal rating firm for online lending

Baihang Credit Scoring, China's first credit reference firm which provides ratings on individuals borrowing money from online finance companies, is expected to start operations soon, having received the green light from the country's central bank on Thursday.

The People's Bank of China said Baihang, with a registered capital of 1 billion yuan ($150 million), has been granted a three-year license. Zhu Huanqi, former chairman of Huida Asset Management Co Ltd, will be the legal representative of Baihang, which was jointly launched by nine shareholders.

The approval marks a "milestone", said analysts, adding that the new company might provide an innovative business model for the development of the country's personal credit market and help curb credit defaults emerging from the much-maligned and less-regulated online lending activities.

The company will also be the only legal entity to provide personal credit information services in the country as it is highly unlikely that the top financial regulator would issue more licenses over the next two years, said an expert close to the matter.

The National Internet Finance Association of China, which is a self-disciplining industry association under the aegis of the PBOC, became the largest shareholder with a 36-percent stake, while the rest of Baihang's stake is equally shared by the other eight credit firms.

The credit firms include Tencent Credit and Alibaba-backed Zhima Credit, both of which have huge databases containing personal credit information related to the online financial services of their parent companies.

"It is a creative business model, which is still under the supervision of the top financial regulator to make sure that potential financial risk from online financing could be controlled and it will help address the lack of records on personal online creditworthiness," said Zhou Hanhua, a researcher with the Institute of Law of the Chinese Academy of Social Sciences.

The new platform will mainly provide personal credit information collected from online microcredit companies, internet credit information intermediary agencies and other internet financing institutions, including consumer finance companies, according to analysts.

Those internet companies, together with the traditional commercial banks, are the clients who will pay for the services to check personal credit ratings before issuing loans, to ensure that the borrower would be able to repay the amount.

This new company, having a governance framework allowing shareholders to enjoy decisionmaking rights and the right to earnings based on their investment proportion, will run in accordance with the market-oriented rules, Zhou told China Daily.

"But it is less possible that more licenses for personal credit rating companies will be issued at a fast pace within the next one to two years, as the market is still in the primary stage and the special business model needs more time for tests," he said.

Li Honghan, a researcher at the Zhongnan University of Economics and Law, said that the eight shareholders which have huge databases will be able to "precisely identify" the individuals' credit situation and help restrain illegal borrowing.