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In order to regulate the behavior of microfinance companies, strengthen supervision and management, and promote the sound operation and healthy development of microfinance companies, the State Financial Supervision and Administration Bureau (hereinafter referred to as the "Financial Supervision Bureau") has studied and formulated the "Interim Measures for the Supervision and Administration of Microfinance Companies (Draft for Comments)" (hereinafter referred to as the "Interim Measures"), and now formally solicits public opinions. The heads of relevant departments of the Financial Supervision Bureau answered reporters' questions on the "Interim Measures".

1. What is the background for the formulation of the “Interim Measures”?

In recent years, the overall operation of the microfinance company industry has been stable. By the end of 2023, there were 6,550 microfinance company legal entities nationwide, with paid-in capital of 822.6 billion yuan and a loan balance of 843.1 billion yuan. Among them, there were 179 online microfinance companies, with paid-in capital of 159 billion yuan and a loan balance of 173.9 billion yuan. The leading online microfinance companies have outstanding advantages in terms of capital, technology, and business management. Some microfinance companies relying on core supply chain enterprises or specific industries also have strong competitiveness in the vertical market, and have played a positive role in increasing the financing availability of long-tail customers. However, some microfinance companies have problems such as extensive business management and high credit risk. Chaos such as excessive marketing, improper collection, illegal charges, and leasing of lending licenses often occurs.

In order to promote the standardized and healthy development of the microfinance company industry, the Financial Supervision Administration (formerly the China Banking and Insurance Regulatory Commission) has continued to promote the construction of regulatory regulations, strengthen the coordination and linkage of central and local supervision, and guide local governments to strengthen their regulatory duties. In recent years, it has issued the "Notice of the China Banking and Insurance Regulatory Commission on Strengthening the Supervision and Administration of Microfinance Companies", drafted the "Interim Measures for the Administration of Online Microfinance Business (Draft for Comments)" and publicly solicited opinions from the society. On the basis of the previous regulatory construction results, the Financial Supervision Administration conscientiously implemented the spirit of the Central Financial Work Conference on comprehensively strengthening the supervision of local financial organizations, widely solicited opinions from central and local financial management departments and industries, focused on the continuous supervision of microfinance companies during and after the event, further refined and improved the regulatory rules, and formed the "Interim Measures".

2. What are the basic principles followed in the formulation of the “Interim Measures”?

The formulation of the Interim Measures mainly follows the following basic principles: First, adhere to laws and regulations. At present, the Regulations on Local Financial Supervision and Administration, as the superior law, has not yet been issued. Under the current legal and regulatory framework, the Interim Measures should not directly stipulate matters that require authorization from laws and administrative regulations, such as institutional access and administrative penalties. Therefore, the Interim Measures mainly refine the regulatory rules on the business operations, corporate governance, risk management, and consumer rights protection of microfinance companies. Second, adhere to overall planning and balancing. Under the main tone of adhering to strong supervision and strict supervision, pay attention to balancing the scientific nature of policy and system design, the feasibility of practice, and the consistency of macroeconomic policy orientation, and strive to achieve overall planning and balancing to ensure the smooth and orderly development of the industry. Third, adhere to problem orientation. In response to the focus issues in the development and supervision of microfinance companies, especially improper marketing, illegal charges, and rental and lending licenses, the Interim Measures adhere to problem orientation, check for loopholes and fill in the gaps, and further improve regulatory rules. Fourth, adhere to the priority of urgent needs. In response to the regulatory needs of urgent needs in practice, focus on solving the problems that can be solved at present. No regulations will be made for the time being for matters that have a major impact on the industry and for which the legislative conditions are not yet mature; for some matters that require systematic regulation, the overall requirements will be clarified first, and the supporting systems will be improved later.

3. The "Interim Measures" stipulate that the loan balance of an online microfinance company for a single household for consumption shall not exceed RMB 200,000, and the loan balance for a single household for production and operation shall not exceed RMB 10 million. What is the consideration behind this?

The Interim Measures stipulate that the upper limit of the loan balance for consumption by online microfinance companies for natural persons is 200,000 yuan per household. The main considerations are: adhere to the functional supervision approach of the same regulatory standards for similar businesses to prevent regulatory arbitrage. The Measures for the Administration of Internet Loans by Commercial Banks and the Measures for the Administration of Consumer Finance Companies both stipulate an upper limit of 200,000 yuan per household for personal consumer loans. Considering that most of the personal consumer loan customers of online microfinance companies are long-tail groups in the sinking market, setting a single-household loan upper limit of the same amount as that of licensed financial institutions can basically meet the needs of online microfinance company customers, and to a certain extent can also avoid irrational excessive borrowing and protect the legitimate rights and interests of consumers.

The Interim Measures do not distinguish between natural persons and legal persons in the operating loans of online microfinance companies, and uniformly stipulate an upper limit of 10 million yuan per household. The main considerations are: First, adhere to prudent supervision and effectively prevent risks. Taking into full consideration the risk characteristics of pure online business and the risk management capabilities of online microfinance companies themselves, it is necessary to limit the amount of loans issued by online microfinance companies in a purely online manner to a certain amount per household. Second, benchmark the definition of similar loans in the banking industry. Banking inclusive small and micro enterprise loans refer to loans issued to small and micro enterprise legal persons, individual industrial and commercial households, and small and micro enterprise owners, with a single household credit amount of less than 10 million yuan (inclusive) and used for production and operation. Benchmarking this definition and setting an upper limit of 10 million yuan per household will help promote online microfinance companies to adhere to the "small and decentralized" business positioning. At the same time, in practice, it is common for small and micro enterprise owners to borrow money in their own name for enterprise production and operation. Applying the same upper limit standard to operating loans for individuals and legal persons is in line with the actual situation of the industry.

During the drafting of the Interim Measures, we conducted research and data calculations on the above provisions. From the results of the research and calculations, the two standards are basically consistent with the current loan amount distribution in the industry. In order to ensure the smooth implementation of the relevant regulations, the Interim Measures set a two-year policy transition period. After the release of the Interim Measures, the existing loans with a single household amount exceeding the upper limit will be naturally settled upon maturity; for customers who have a need to renew their loans after the loan expires, online microfinance companies will be guided to gradually adjust the single household amount during the transition period to steadily achieve a "soft landing" of capital continuation.

4. The “Interim Measures” stipulates that “the conditions for the operating areas of online microfinance companies shall be stipulated separately”. What are the considerations behind this?

Article 11 of the Interim Measures stipulates that the conditions for the operating areas of online microfinance companies shall be separately stipulated. The main consideration is that the Local Financial Supervision and Administration Regulations have been included in the State Council's 2024 legislative work plan, and the Financial Supervision Administration is currently speeding up the drafting of the regulations in accordance with procedures. After the regulations are officially issued, we will promptly revise and improve the Interim Measures and form formal regulatory measures to clarify the market access conditions and procedures for microfinance companies, cross-regional business development of microfinance companies, administrative penalties and other matters.

It should be pointed out that since 2017, the approval of new online microfinance companies has been suspended nationwide. In recent years, the number of existing online microfinance companies has gradually decreased, from 224 in 2018 to 179 at the end of 2023. In the next step, the Financial Supervision Administration will guide the local financial management bureaus of provinces (autonomous regions and municipalities) to continue to do a good job in the supervision of existing online microfinance companies, guide institutions to enrich and improve financial products and services, focus on strengthening the supply of financial services for small, medium and micro enterprises, "agriculture, rural areas and farmers" and other key areas of inclusive finance, and effectively meet the financial needs of high-quality development of local economy and society and improvement of people's livelihood.

5. Compared with banking financial institutions, the loan delinquency rate of microfinance companies is relatively high. In practice, there have been cases of microfinance companies closing down due to poor management. What targeted measures does the "Interim Measures" have to strengthen risk prevention and control?

The Interim Measures focus on strengthening corporate governance and risk management of microfinance companies around risk prevention and supervision, and lay a solid foundation for the steady development of microfinance companies. First, it sets clear requirements for internal control systems such as corporate governance, risk management, and related-party transaction management. Among them, microfinance companies with smaller scale or fewer shareholders are allowed to appropriately simplify their organizational structure according to actual conditions and explore effective internal control methods. Second, it clarifies the requirements for asset risk classification. It stipulates that microfinance companies should classify loans overdue for 90 days or more as non-performing loans, and require microfinance companies to strengthen asset quality management, make timely and sufficient risk provisions, and improve their ability to resist risks. Third, it clarifies the requirements for fund account supervision and strictly manages funds. Special account management is implemented for microfinance companies' loan funds, and all funds must be placed in special loan accounts and reported regularly to provincial local financial management agencies. Fourth, it raises the requirements for the construction of information systems for microfinance companies, especially online microfinance companies. For example, for online microfinance companies, it emphasizes the use of independent business systems, and should meet the conditions of full-process online operation, sound risk prevention and control system, and compliance with network and information security management requirements.

6. What requirements does the “Interim Measures” put forward for microfinance companies’ consumer rights protection work?

In response to the strong complaints from consumers about issues such as inducing lending, improper collection, and disclosure of personal information, the Interim Measures set up a special chapter to comprehensively regulate the protection of consumer rights of microfinance companies: First, starting from protecting consumers' right to know, right to choose, right to fair trade, and right to information security, the Interim Measures regulate the information disclosure, risk warnings, marketing and publicity, and collection and use of customer information of microfinance companies. Second, the negative list management of illegal and improper behaviors is strengthened, and microfinance companies are clearly prohibited from bundling sales or attaching unreasonable conditions, listing loans as the default option for payment and settlement, inducing excessive debt and multiple borrowing, and collecting debts by illegal or improper means. Third, the list management of cooperative institutions is strengthened to ensure that the mobile applications (APPs), mini-programs, and websites of cooperative institutions have been filed in accordance with the law, timely identify and assess the risks that may be caused by violations of laws and regulations by cooperative institutions, and urge cooperative institutions to implement compliance management and consumer rights protection responsibilities.

7. How is the transition period of the Interim Measures set?

To ensure the smooth implementation of the policy, Article 63 of the Interim Measures stipulates that microfinance companies should gradually meet the requirements of the various provisions of these Measures during the transition period specified by the provincial local financial management agency. The transition period shall not exceed 1 year, of which the transition period for online microfinance companies with a single production and operation loan limit of 10 million yuan shall not exceed 2 years. If an extension is indeed necessary, the Financial Regulatory Bureau shall approve it. In the next step, the Financial Regulatory Bureau will guide all localities to orderly promote online microfinance companies to improve their business structure during the transition period, gradually optimize the level of relevant indicators, and meet policy requirements.

8. What is the relationship between the “Interim Measures” and the current regulations?

At present, the regulatory documents on the supervision of microfinance companies mainly include: "Guiding Opinions of the China Banking Regulatory Commission and the People's Bank of China on the Pilot of Microfinance Companies" (Yinjianfa [2008] No. 23), "Notice of the General Office of the China Banking and Insurance Regulatory Commission on Strengthening the Supervision and Administration of Microfinance Companies" (Yinbaojianbanfa [2020] No. 86). According to Article 66 of the "Interim Measures", the "Interim Measures" shall come into force on the date of issuance, and the "Notice of the General Office of the China Banking and Insurance Regulatory Commission on Strengthening the Supervision and Administration of Microfinance Companies" shall be abolished simultaneously. "Guiding Opinions of the China Banking Regulatory Commission and the People's Bank of China on the Pilot of Microfinance Companies" remains valid, and any provisions inconsistent with the "Interim Measures" shall be subject to the "Interim Measures".