China Unveils New Online Lending Regulations Restricting Cross-border Operation, Leverage Levels and Lending Amounts


The Chinese central government has released new regulations which place tighter restrictions on online micro-loans following the recent collapse of the P2P lending sector.

On 2 November the Chinese central bank and the China Banking and Insurance Regulatory Commission (CBIRC) jointly issued the draft version of the “Online Micro-loan Operations Provisional Administrative Measures” (网络小额贷款业务管理暂行办法(征求意见稿)) for the solicitation of opinions from the public.

The Measures “in principle” limit the online micro-loan balance for natural persons in China to the lower of either 300,000 yuan (approx. USD$44,900) or one third of the average annual income of such persons for the past three years. The online micro-loan balance for legal persons or other institutions is limited to one million yuan.

Online micro-loan companies are subject to strict leverage restrictions, with the Measures stipulating that funds obtained via bank loans, shareholder loans or other “non-standard forms of financing” shall not exceed one-fold net assets, while funds obtained via the issuance of bonds, asset securitisation products and other debt assets shall not exceed four-times net assets.

The Measures also seek to address the recent trend of online finance companies engaging in cooperation with licensed financial institutions for the purpose of loan facilitation or the provision of joint loans.

Micro-loan companies in China shall not be permitted to provide loans on behalf of institutions that are not qualified for lending operations, and the contribution of micro-loan companies to a single joint loan must not be less than 30%.

The Measures further stipulate that micro-loan companies are not permitted to engage in cross-provincial operations without the approval of China’s State Council, and should instead focus on business within the province-level administrative entity of their registered location.

The minimum registered capital of micro-loan companies in China will be set at 1 billion yuan, which must be actually paid up on a single occasion, while this amount increases to 5 billion yuan for micro-loan companies permitted to engage in cross-provincial operations.

The release of the draft regulations arrives following a drop in the number of active P2P lending platforms in China from over 5,000 at their peak to just six as of the end of September. Chinese regulators stepped up a crackdown on P2P lending in China after the once-flourishing sector was found to be rife with fraud issues.