Legalizing gray-area private lenders

The People’s Bank of China plans to submit proposals for the regulatory changes to the State Council, or cabinet, as soon as possible, said Zhou Xuedong, director general of the central bank’s law and regulation department.

Mr. Zhou said the central bank plans to propose removing a rule that has been in place since 1995 that caps interest rates charged by makers of microloans at four times the benchmark lending rate. He told a financial forum in Beijing that in practice many microlending firms have charged rates above the ceiling.

He also said the central bank has drafted a proposal to legalize non-bank private-lending firms, which have been playing an important role in supporting some small businesses, despite their semi-legal gray-market status.

China’s banks have been keen to lend to large or state-owned enterprises, while the share of credit going to smaller or private firms remains small due to concerns about their ability to repay loans and the transparency of their asset structure.

He said the central bank will also propose easing restrictions to allow microlending firms to borrow money.

The PBOC plans to let microlending firms borrow amounts equal to no more than two times their net capital from up to two financial institutions and one non-financial institution, in comparison with the previous ceiling of 50% of their net capital, he said.

Source : Konaxis

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