China cracks down on online micro-lending firms

4 December, 2017 12:00 AM printer

BEIJING: China’s financial regulators have circulated new rules to local governments targeting fast-growing online micro-lenders, part of a campaign to rein in a rapidly developing financial sector.

Under the new rules, unlicenced organisations and individuals are not allowed to conduct a lending business, according to the notice, reports The Business Standard.

Lending institutions are also not allowed to give loans to borrowers who have no source of income or to mislead consumers into over-borrowing, according to the notice.

The rules were devised by a multi-ministry body, tasked by the central government with bringing risks in internet finance under control. Beijing has zeroed in on the loosely regulated market for small, unsecured “cash loans”, which can be issued by mobile phone apps and have come under criticism for exaggerated advertising and aggressive debt collection.

“Amid the rapid development of cash loans — while they have played a role in meeting the normal credit needs of some groups — problems such as over-lending, repeat borrowing, improper collection, abnormally high interest rates, and privacy violations have become prominent,” the multi-ministry group said in a statement. “This has led to relatively big hidden financial and social risks.”

Companies providing micro-loans have expanded rapidly in the past year, partly due to loose government rules. The rush to supply credit has also led Chinese micro-loan firms such as Ant Financial-backed Qudian, China Rapid Finance and PPDai to raise funds in New York.

However, shares of micro-lenders listed on US stock markets have slumped in recent weeks. Regulators were widely expected to issue new rules to clean up the sector, estimated to be worth 1 trillion yuan ($151.5 billion) with thousands of players.

The maximum number of times a loan can be extended is “generally” two times, the notice said, without explaining what if any exceptions there were.