The Chinese central government has heightened its scrutiny of Internet microlending with the launch of new measures for standardisation of the sector.
On 1 December China’s Internet Financial Risk Special Rectification Work Leadership Team Office (互联网金融风险专项整治工作领导小组办公室) and the P2P Online Loan Risk Special Rectification Work Leadership Team Office (P2P网贷风险专项整治工作领导小组办公室) issued the “Notification Concerning Standardisation and Reorganisation of Cash Loans” (关于规范整顿“现金贷”业务的通知).
The Notification comes shortly after the Internet Financial Risk Special Rectification Leadership Work Team issued an emergency directive on 21 November, mandating the immediate suspension of approvals for the establishment of new online microlending companies.
Chinese regulators have become increasing concerned about the proliferation of online micro lending in the Chinese financial sphere, with reports that some platforms are charging exorbitant interest rates of as much as 1000%, and that less than a quarter of actual operators are licensed.
The new Notification seeks to “ban illegal institutions” via the adoption of regulatory measures including a negative list, while also providing detailed requirements for online microloans and cash lending.
The measure outline a 36% interest rate threshold, provide an expanded definition of cash loans, as well as reiterate the suspension on Internet microloans that meet the definition of a cash loan (现金贷).
“At present very few platforms meet the target of annualised interest rates of under 36%,” said Huang Yiping, vice-head of the National Development Research Institute of Peking University, to Sina. “If this is strictly implemented, then it will have a major impact upon cash loan business.”
Analysts expect the new Notification to shake up China’s Fintech sector given their severity.
“The contents of the Notification are more severe than previously expected by the market,” said Xue Hongyan (薛洪言) of Suning Finance to Sina.
The new Notification also affects P2P platforms that engage in business that meets the definition of a “cash loan,” which means that their high interest products could be affected, putting further pressure on the sector.