CBIRC Steps up Pressure on Use of Microloan Funds for Investment in Stocks and Derivatives

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The China Banking and Insurance Regulatory Commission (CBIRC) is stepping up efforts to prevent the use of funds from microloan companiess for investment in stocks and derivatives.

CBIRC announced on 16 September that it had recently issued the “Notice Concerning Strengthening of Microloan Company Supervision and Administration” (关于加强小额贷款公司监督管理的通知).

The Notice stipulates that loans made by microloan companies cannot be used to invest in stocks or derivatives, or for illicit real estate market financing.

A CBIRC official said that certain regulatory areas for microloan companies have been in urgent need of greater clarity, in order to better constrain arbitrage and standardise regulation.

In future CBIRC will continue to strengthen its regulatory system for microloan companies, and ensure consistency with the “Non-depository Lending Organisation Regulations” (非存款类放贷组织条例).

As of the end of December 2019 China was host to 9074 legal person microloan companies, while the sector as a whole had accepted 947.8 billion yuan in capital, and its lending balance was 1.0043 trillion yuan.

With regard to external financing, the Notice stipulates that the balance of funds obtained via non-standard forms of financing such as bank loans or shareholder loans cannot exceed one-time its net assets, while the balance of funds obtained via standard debt assets such as the issuance of bonds or asset-backed securities cannot exceed four-times net assets.

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