China issues draft rules to regulate online micro-lending business

[BEIJING] China's central bank and regulators issued draft rules on Monday to boost the oversight of online micro-lending as it tries to rein in rising debt levels in the coronavirus-hit economy.

The draft rules from the People's Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) seek to increase the bar for micro-lenders to be able to provide online loans directly to consumers or jointly with banks, while limiting the amount they can lend.

Regulators are sharpening their focus on banks that heavily use micro-lenders or third-party technology platforms like Ant Group to underwrite consumer loans, amid fears of rising defaults and deteriorating asset quality.

Chinese banks' consumer loans sourced via tech firms reached 1.43 trillion yuan (S$291.5 billion) as of end-June, according to the PBOC.

The draft, which is open for public feedback until Dec 2, set a new requirement for small online lenders to provide at least 30 per cent of any loan they fund jointly with banks.

They also set a 5 billion yuan registered capital threshold for micro-lenders that offer loans online across different regions. The current threshold varies between provinces but is well below 1 billion yuan.

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Micro-lenders which source borrower data from e-commerce platforms to assess their credit will be required to share the credit information with the central bank, according to the draft rules.

Analysts expected banks to turn more cautious about providing joint loans with fintech lenders to consumers as a result.

Guo Wuping, head of the consumer protection division at CBIRC said in a commentary on Monday that the rights of users of Ant-owned consumer loan companies Huabei and Jiebei deserve close scrutiny.

Mr Guo said such fintech loan companies effectively perform the functions of banks and should adopt similar risk controls.

Licenses for eligible lenders will be renewed every three years, according to the draft rules, which said regulators will in principle not approve new micro-lenders that lend online across regions.

Lenders will have 12 months to comply with the new rules once it becomes official.

REUTERS