Financial innovation helps small Chinese businesses ease financing difficulty

ZHENGZHOU - Small and micro businesses in China often have difficulty getting loans, although they play an important role in the national economy.

The situation has been improving gradually with the application of financial innovations in recent years.

Cheng Jianqiu, general manager of a small clothing factory in the city of Zhengzhou, capital of Central China's Henan province, said the firm has obtained a line of credit of 660,000 yuan ($95,400) this year by using the credit system "Yunshuidai" from the China Construction Bank (CCB).

"It is now easier to get loans than before as the key conditions for tax loans are simply operation compliance and paying taxes according to law," Cheng said.

The credit quota could be up to 3 million yuan depending on the amount of tax a business has paid, a clerk of the CCB Henan branch said.

There was a similar credit product before "Yunshuidai," but it was not efficient.

"First, I had to obtain a tax certificate from the tax department and submit it and other financial statements to the bank for approval. The process took more than one month, but now I can borrow money in minutes by phone after registration," Cheng said.

The CCB Henan branch in March launched the "credit and tax" system, which is able to obtain a company's tax payment information automatically and facilitate the transition from taxpaying credit to bank credit.

The funding cost is also lowered. "Unlike term loans, I can use and repay the loan at any time, so the real cost goes down," Cheng said.

Due to the financial innovation and diversifying financing channels, more and more entrepreneurs like Cheng feel more at ease when they need additional money for business expansion.

There were 40 kinds of similar credit products for small and micro enterprises in Henan by the end of May, 28 more than in 2012, data showed. They can also turn to note financing, green financial bonds and startup corporate bonds.

In recent years, the People's Bank of China (PBOC), or the central bank, has rolled out policies guiding banks to extend more loans to small and micro businesses, said Xu Nuojin, head of PBOC's Zhengzhou branch.

In addition, continuous improvement of the credit system and the application of technology, such as big data in finance, provide support for financial innovation, said Xu.

Financial innovation has improved the availability of loans for small and micro enterprises, with their outstanding loans increasing continuously.

According to the China Banking and Insurance Regulatory Commission, the outstanding bank loans for small and micro enterprises totaled 30.74 trillion yuan by the end of 2017, up 73.1 percent from the end of 2013 and accounting for 24.5 percent of all loans.

The loans provided capital to 15.2 million small and micro enterprises, up 21.7 percent from the end of 2013.

With more similar financial products emerging, the market competition will heat up, making the financing cost more transparent and reasonable.

Data from the central bank showed that in June, the average borrowing cost for China's small and micro enterprises, which were each granted less than 5 million yuan of loans, was 6.42 percent, 0.13 percentage points lower than the end of last year.

"Financial innovation can reduce the financing difficulties of small and micro businesses, but we should pay more attention to their diversified demands, especially that of some startups," said Bei Duoguang, president of the Chinese Academy of Financial Inclusion at the Renmin University of China.

"Startups often have no mortgage and transaction records with financial institutions, and it is not easy for them to get credit," said Bei, calling for more financing support for the startups.