The People’s Bank of China (PBOC) yesterday took steps to rein in online micro-lending to individuals, a move that sent shares in US-listed Chinese lenders plummeting.
The move took the form of an “urgent” notice issued by a government agency on Tuesday, which forbade the licensing of any new micro-lending practices in the country, and requiring regional “bricks-and-mortar” lenders to operate only within the geographical constraints of their regional locations.
The instruction was effective immediately, the notice said, and referred further questions to the PBOC.
“In recent years, some regional authorities have approved the set up of online small lending companies, or allowed small-loan companies to run online lending services, while the consumer lending business provided to some institutions contained relatively big risks,” said the notice.
Consumer debt ‘spiralling out of control’
The underpinning policy seems to be one of concern over consumer debt spiralling out of control, as many consumers are perceived to be living beyond their means, with household debt rising due to mortgages and personal loans.
The amount of capital raised for business purposes such as start-ups and “entrepreneurship” is also said to be a cause for concern, according to media reports on Tuesday.
At the last count, at the end of June, there were around 200 online micro-lenders licensed to operate in China.
Unsecured consumer lending via Chinese online platforms more than tripled last year to almost £106bn (US$140bn, €119bn), the Cambridge Centre for Alternative Finance said in a recent publication.
Payday loans also in the crosshairs
Meanwhile, payday loans are also causing concern, as China’s outstanding short-term consumer loans grew by 1.49trn yuan (£170bn, US$225bn, €192bn) to Q3 end of this year, almost double the 830bn yuan growth for the whole of 2016, PBOC data shows.
PBOC took the dramatic steps “after a number of loans collection agents were exposed to engage in aggressive tactics to hound young borrowers, bringing into question the predatory nature of some lenders”, Shenzhen Internet Financial Association secretary-general Zhang Guodong told South China Morning Post.
Payday loans, or unsecured cash advances provided to borrowers with prior payroll records, are “particularly egregious”, he said.
“Payday loan companies are just one type of the fast developing small loan companies, a loosely regulated market where some players are running around with online lending licenses issued by provincial level authority, while some operate without even an online business license,” said Zhang.
“While several big payday loan companies have already raised billions of dollars of capital at home and in the US, it is worth watching whether the central bank will introduce further restrictions on the interest rate they could charge, or push them to meet stricter requirements.”