Hundreds of private finance companies are rushing to apply for licenses to provide small loans in China’s eastern Zhejiang province. This comes just after provincial authorities legalized the practice, following a pilot program in July.
It’s an unprecedented move by the local government effectively bringing in what was previously an underground financing market. But authorities are also under pressure to meet rising demand for credit from the many small and medium sized business across China.
Market insiders say the lending rate of these private finance firms are not permitted to exceed four times that of the official benchmark lending rate. Another restriction confines customers to just local firms. This effectively limits short term profits for such private lenders pushing them to target long term benefits instead, such as eventual conversion into full-scale banks.
Source – CCTV
