Online Micro Lending Seen As Key Adjunct to Chinese Finance


Leading corporations and Internet firms are chomping at the bit to enter China’s burgeoning online micro lending sector.

Sudden Boom in China’s Online Micro Lending Sector

As of the end of March the Chinese government had issued a total of 82 licenses for online micro lending, with at least 47 new firms entering the sector in 2016 alone.

Listed companies are a key driving force behind this sudden proliferation in the online micro lending sector, backing the establishment of 51 license-holders.

Southern China is home to the preponderance of new online micro lenders, due to the strength of its IT and Internet industries.

Guangdong province is host to the largest number of online micro lenders, with 29 in total, while the central Chinese mega city of Chongqing lays claim to a further 18.

Jiangsu and Jiangxi province are home to 11 and six online micro lenders respectively, while Shanghai-centred Zhejiang province has a total of five.

Given the relative youth of China’s online micro loans sector, many new entrants are still in the process of developing the online technology and protocols needed for their lending operations, or striving to adapt traditional micro loan business models to the Internet.

Core Benefits of Online Microlending for China’s Financial Ecosystem

Leading figures in the online micro loans sector believe that it could play an key ancillary role in Chinese financial markets, by breaking through the geographic restrictions of traditional micro lending, and giving companies the opportunity to channel their funds to any location in the country.

Given that so many online micro lenders are backed by large-scale listed companies, a key advantage they possess is access to extensive and detailed information on potential borrowers who are clients of their parent company.

This means they can establish more effective risk control systems and lending decision mechanisms straight out of the gate.

An outstanding example of this is the online micro loan platforms established by major online and electronics retailers such as Ali Baba, and Suning, who have a vast customer base as well as accompanying database that can abet lending decisions.

Another advantage is the versatility online micro lenders enjoy under China’s existing regulatory framework, which permits them to lend to both individuals and enterprises.

Regulation Attention and Risk

The breakneck growth of China’s online micro lending sector has created concern amongst some that regulators as well as companies will lack sufficient ability to control risk in the sector.

The China Banking Regulatory Commission issued a notice on risk in relation to online micro lending earlier this year, calling for local government to exercise caution in its approval processes prior to the released of nation-wide opinions on the sector.

Li Junfang, chairman of CBRC’s Inclusive Finance Department has also said that local financial regulators must exercise particular care in relation to cross-border online micro lending, and prevent the formation of new forms of “regulatory arbitrage” or risk.