Regulatory net to cover more lenders

Move to encourage development of additional micro financing organizations, says official

Draft regulations on non-deposit-taking lenders will be submitted to the State Council this year as part of a wider effort to prevent systemic and regional risks, said a senior official.

"Officials from the central bank and related government departments are working on the draft, and we have discussed the basic regulatory framework," Liu Changchun, director of fiscal and financial regulations at the Legislative Affairs Office of the State Council, told China Daily on the sidelines of a forum on Monday. Final approval may come next year, she said.

The regulation will cover all lenders that cannot accept deposits, most of which are private micro-credit companies. They often raise capital through debt issues.

Pan Gongsheng, deputy governor of the People's Bank of China, the central bank, spoke at the forum, which was held by the Research Institute of the PBOC and the World Bank's International Finance Corp.

Pan said: "This regulation aims to improve supervision of (these companies), while encouraging the development of various micro-financing organizations." The regulation would also establish a clear boundary between these lenders and loan sharks, and it would help these small-scale credit sources when it comes to supporting the real economy.

As of March 31, there were 8,922 small private lending companies in China, compared with just 497 in 2008, with total outstanding loans of 945.4 billion yuan ($154.7 billion), according to data from the China Microcredit Company Association. The average leverage ratio, reflecting the ratio of credit extended compared with capital, was 113 percent, the association said.

Lending rates in this sector vary, but they are usually many times higher than the official rates. For example, in Jiangsu province, which has 633 micro-credit companies, annual lending rates range from 15 to 18 percent, compared with the central bank's one-year benchmark loan rate of 5.1 percent. The rate can be as high as 20 percent in some regions.

Another area of concern to financial regulators is Internet-based finance, including peer-to-peer lending. These little-regulated entities can be risky for creditors, who have few rights if a P2P platform's operator suddenly closes.

The draft regulation may cover small online lenders, said Liu Xiangmin, deputy director of the regulation and legal department at the PBOC.