PBOC Flags Greater Loan Support for Small Business, Averages Rates Stand at 6%


The governor of the People’s Bank of China said that it would work with other central government agencies to expand financing for small and micro-enterprises.

Speaking at the 2018 Lujiazui forum Yi Gang (易纲) said that the central bank would work with related departments on policies to expand the volume of lending to small and micro-enterprises and improve associated services.

Yi said that conventional financial institutions must provide greater financing to small and micro-enterprises and become a “principal force” for their financing, while informal financing should serve as a supplementary channel of funds.

“At present, the financing ratio of conventional finance and informal finance to China’s small and micro-enterprises stands at approximately six to four,” said Yi.

“Compared to countries or regions with  more developed financial markets, China’s conventional financial institutions still have ample room for increase in their share.

“Additionally, the financing costs of conventional financing and informal financing differ…in recent years the rates for loans by Chinese financial institutions to small and micro-enteprises have been around 6% on average.

“For online loans rates are around 13%, while in Wenzhou informal lending rates are above 15%, and the rates provided by financial institutions such as micro-loan companies are between 15 – 20%.”

Yi further notes, however, that lending to small and micro-enterprises in China remains risk fraught, especially compared to major developed economies.

While the average shelf life of small and micro-enterprises is around eight years in the US and 12 years in Japan, in China’s it’s approximately three years, with only one third of such companies still in regular operation after three years.

China’s small and micro-enterprises obtain their first loan four years and four months following their establishment on average, which means they only obtain financing well after the end of their average lifespan.

As of the end of March 2018, the non-performing loan ratio for small and micro-enterprises was 2.75%, 1.7 percentage points higher than the rate for large-scale enterprise.

Yi stressed the need for sustainable financing of small and micro-enterprises, as well as for government departments to actively push for financial institutions to provide them with services.

According to Yi four areas of policy will be emphasised:

i) The central bank will give consideration to supporting commercial banks in expanding the strength of financial services to small and micro-enteprrises via monetary policy tools including reserves, re-financing, re-discounting and interest rates.

ii) Financial authorities must give consideration to differentiated regulation of the risk and risk premiums of small enterprises.

iii) Finance departments will provide significant tax benefits for small and micro-enterprise loans.

iv) Commercial banks must raise the level of service for small and micro-enterprises when it comes to internal transfer pricing and service mechanisms.

Yi Gang’s speech arrives following the introduction of a targeted cut to the required reserve ratio in April, which was partially designed to expand the availability of funds to smaller banks that are more inclined to lend to micro enterprises.