Chinese regulators have launched an immediate suspension of the establishment of new online micro-lending platforms, following reports of exorbitant interest rates and widespread unlicensed operation.
China’s Internet Financial Risk Special Rectification Leadership Work Team (互联网金融风险专项整治工作领导小组) issued an emergency directive on 21 November mandating the immediate suspension of approvals for the establishment of online micro-lending companies.
The “Notice Concerning the Immediate Suspension of the Approval of Internet Micro-lending Companies” (关干立即暂停批设网络小额贷款公司的通知) states that “over the past several years, certain regions have seen the continuous approval of Internet micro-lending companies or permission for micro-lending companies to engage in Internet micro-lending operations, and considerable risk hazards exist in relation to the “cash loans” provided by certain institutions.
“As of this date, all micro-lending company regulatory authorities are prohibited from issuing new approvals for online micro-lending companies, and prohibited from approving online micro-lending companies from engaging in cross-provincial micro-lending operations.”
Rumours have long circulated that Chinese regulators planned to launch a crackdown on Internet micro-lending, hampering the state-side IPO’s of Fintech concerns such as PPDAI Group.
Domestic media has reported that some micro-lending platforms are charging exorbitant interest rates of up to 1000%, while less than a quarter of all companies in the sector are in compliance with licensing requirements.
According to Changjiang Times while there are at least 1,000 online micro-lending platforms operating in China, including P2P lenders, consumer finance companies and third party payment vehicles, as of the end of September this year the Chinese government had only issued a total of 237 online micro-loan licenses.
As early as February of this year Li Junfeng (李均锋), chair of the Financial Inclusion Office of the China Banking Regulatory Commission, warned of the risk associated with online cross-regional micro-loan operations.
Li said that CBRC was researching guidance opinions on online micro-loans, and called for local regulators to exercise greater prudence in the dispensation of approvals.
Renren Jucai (人人聚财) CEO Xu Jianwen (许建文) said to National Business Daily that China lacked uniform standards when it came to qualifications and requirement in relation online micro-loans, or even the stipulation of definite quotas.
Local financial regulators possess considerable freedom and discretion when it comes to approvals, creating a strong likelihood of regulatory arbitrage.
Xu pointed out that micro-loans were similar to P2P lending in that they were nationwide operations, thus requiring a more uniform set of regulatory measures.