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economic observer reporter lao yingying on august 23, the state financial supervision and administration bureau issued the "interim measures for the supervision and administration of microfinance companies (draft for comments)" (hereinafter referred to as the "draft for comments").

meng weihuan, general manager of chongqing xiaoyudian microfinance co., ltd., told economic observer that the "draft for comments" aims to regulate the business operations of microfinance companies, strengthen the coordinated linkage between central and local supervision, and promote the sustained and stable development of the industry. its release has the significance of clarifying the regulatory framework of the microfinance industry, emphasizing a return to the main business, strengthening corporate governance and risk management, and promoting the industry to reduce quantity and increase quality.

article 16 of the draft for comments stipulates that microfinance companies should clearly agree with borrowers on the purpose of loans and monitor the use of loans in accordance with the contract. the purpose of loans should comply with laws and regulations, national macroeconomic regulation and industrial policies, and should not be used for purposes such as "repaying loans or repaying other financing".

several people from microfinance companies told economic observer that this regulation is the most damaging to the business of microfinance companies, because many microfinance companies are engaged in this business.

“cannot be used to repay loans” has a big impact

a person from a microfinance company in guangdong told economic observer that the most typical example of "repaying loans or other financing" is bridge financing, which includes small and micro businesses and individual borrowers. for example, some small and micro businesses cannot repay bank loans when they are due, so they may borrow funds from microfinance companies to repay the bank loans first; individuals may want to redeem their houses, but the loans have not been paid off, which may also involve bridge financing.

ji shaofeng, a microfinance expert, also told economic observer that there is a mismatch between the actual use of enterprises and the term of bank loans. when enterprises lack liquidity, they will have a very clear demand for loan transfers and need to transfer funds from other channels to repay bank loans. therefore, microfinance companies will see this demand from enterprises and launch corresponding business products to help enterprises repay bank loans.

the above-mentioned persons all stated that if the relevant provisions of the "draft for comments" are implemented, businesses similar to the above-mentioned ones will not be allowed to be carried out. this will have a relatively large impact on microfinance companies that carry out such businesses, but the impact on online microfinance companies that mainly provide consumer loans will be relatively small.

regarding this provision of the "draft for comments", the above-mentioned person believes that the intention of the supervision is to reduce the intermediary costs of borrowers, because whether it is an individual or an enterprise, there are other costs in the middle when borrowing funds from a microfinance company to repay bank loans.

in addition, the draft for comments also sets requirements for the loan concentration of microfinance companies: the balance of various loans to the same borrower shall not exceed 10% of its net assets, and the balance of various loans to the same borrower and its affiliates shall not exceed 15% of its net assets. in this regard, the above-mentioned microfinance company personnel said that these clauses have little impact and the amount is sufficient for borrowers.

the draft for comments also stipulates that microfinance companies should be based in the local area and should not conduct business across provinces, autonomous regions, and municipalities directly under the central government; the conditions for microfinance companies to conduct business across cities and prefectures shall be stipulated by provincial local financial management agencies, and major matters such as establishment and termination shall be handled by provincial local financial management agencies and shall not be delegated. in this regard, the above-mentioned microfinance company personnel said that the relevant regulations are intended to strengthen the responsibilities of provincial local financial management agencies.

regulatory details for online micro-loan companies still need to be clarified

the "draft for comments" also stipulates the loan concentration of online microfinance companies: the loan balance for consumption of a single household shall not exceed rmb 200,000, and the loan balance for production and operation of a single household shall not exceed rmb 10 million.

in this regard, the relevant department heads of the state financial supervision and administration bureau said in response to reporters' questions about the "draft for comments" that the former mainly considers the functional supervision idea of ​​adhering to the same regulatory standards for similar businesses to prevent regulatory arbitrage. the "regulations on the administration of internet loans of commercial banks" and the "regulations on the administration of consumer finance companies" both stipulate a single-household upper limit of 200,000 yuan 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, stipulating a single-household loan upper limit of the same amount as that of licensed financial institutions can basically meet the customer needs of online microfinance companies, and to a certain extent can also avoid irrational excessive borrowing and protect the legitimate rights and interests of consumers. the latter mainly considers effective risk prevention. it is necessary to limit the single-household loans issued by online microfinance companies in a purely online manner to a certain amount. benchmarking the definition of similar loans in the banking industry is conducive to promoting online microfinance companies to adhere to the "small and decentralized" business positioning.

ji shaofeng believes that for online micro-loan companies, the "draft for comments" does not provide more details and only provides guidance from a macro perspective. in fact, it is very difficult to regulate online micro-loan companies.

meng weihuan believes that this "draft for comments" once again emphasizes that local microfinance companies are not allowed to operate across provinces, but for the business areas of online microfinance companies, it only stipulates that "the conditions for the operating areas of online microfinance companies shall be stipulated separately", and the specific regulations are still to be issued in subsequent documents.

on november 2, 2020, in order to regulate online micro-loan business, prevent risks in online micro-loan business, protect the legitimate rights and interests of micro-loan companies and customers, and promote the standardized and healthy development of online micro-loan business, the former china banking and insurance regulatory commission, together with the people's bank of china and other departments, drafted the "interim measures for the administration of online micro-loan business (draft for comments)". more than three years have passed, and the interim measures for online micro-loan business have not yet been issued.

since 2017, the approval of new online microfinance companies has been suspended nationwide, and the number of existing online microfinance companies has gradually decreased in recent years. according to statistics from the state financial supervision and administration bureau, the number of online microfinance companies has decreased from 224 in 2018 to 179 at the end of 2023, with paid-in capital of 159 billion yuan and loan balance of 173.9 billion yuan.

the above-mentioned guangdong micro-loan person said that the current regulatory trend is that online micro-loan companies established by leading e-commerce platforms will be required to reduce their registered capital. along with the reduction of registered capital, net assets will also decline, thereby limiting the unlimited expansion of asset scale.

in addition to the interim measures, meng weihuan also expects to see inclusive financial policy support applicable to the online microfinance industry. he said that the special policy funding support for the inclusive finance field by the national finance and policy banks does not include online microfinance companies as eligible applicants, and related re-loans are only open to banks.

he believes that the purpose of special policy funds for inclusive finance is to provide targeted services to inclusive finance customers. any licensed institution that is capable of providing inclusive finance products to such customers above a certain scale should be eligible to obtain and use such special funds in a targeted manner. in other words, the use of such special funds should be determined by the actual results of inclusive finance business development rather than the type of institution involved.

strengthen supervision and prevent risks

at present, the main normative documents on the supervision of microfinance companies include "guiding opinions of the china banking regulatory commission and the people's bank of china on the pilot program of microfinance companies" (yinjianfa [2008] no. 23) and "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 draft for comments, the interim measures will be implemented from the date of publication, and the notice of the office of the china banking and insurance regulatory commission on strengthening the supervision and administration of microfinance companies will be abolished simultaneously. the guiding opinions of the china banking regulatory commission and the people's bank of china on the pilot program of microfinance companies will remain valid, and any provisions inconsistent with the interim measures shall be subject to the interim measures.

the relevant department heads of the state financial supervision and administration bureau said in response to reporters' questions that the background for the formulation of the "interim measures" is that the leading online microfinance companies have outstanding advantages in terms of capital, technology, and business management. some microfinance companies that rely 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 management and high credit risk. excessive marketing, improper collection, illegal charges, and renting out of lending licenses often occur. in order to promote the standardized and healthy development of the microfinance company industry, focus on the continuous supervision of microfinance companies during and after the event, further refine and improve the supervision rules, and form the "interim measures".

industry insiders interviewed by reporters all said that the "draft for comments" aims to strengthen supervision of microfinance companies, further standardize their business operations, and prevent business risks of microfinance companies.

in recent years, microfinance companies are facing strong supervision and continuous withdrawal. according to statistics from the state financial supervision and administration bureau, by the end of 2023, there were 6,550 microfinance companies nationwide, with paid-in capital of 822.6 billion yuan and a loan balance of 843.1 billion yuan. the people's bank of china's 2024 second quarter microfinance company statistics report released on its official website shows that by the end of june 2024, there were 5,428 microfinance companies nationwide, with a loan balance of 758.1 billion yuan.

in june 2024, the party committee of the state-owned assets supervision and administration commission of the state council held an enlarged meeting to emphasize that, in principle, all central enterprises shall not establish, acquire, or newly invest in various financial institutions, and in principle, financial institutions with greater risk spillovers shall not be allowed to invest in or increase their holdings.

in addition, as microfinance companies have been in a difficult situation in recent years, central enterprises and state-owned enterprise subsidiaries are also accelerating the liquidation of microfinance company equity. on august 7, information from the guangzhou equity exchange showed that poly south group co., ltd. and poly investment holdings co., ltd. jointly transferred 200 million shares of guangzhou poly microfinance co., ltd., accounting for 100% of the equity, with a transfer floor price of 281 million yuan. on july 22, tianyi e-commerce co., ltd., a subsidiary of china telecom group co., ltd., listed the transfer of 41.1765% of the equity of chongqing zhongan microfinance co., ltd. at the beijing equity exchange.