China to keep up financial risk control campaign with draft rules for microlenders

A draft set of rules and standards have been released for China’s microfinancing firms, with risk control and consumer protection in mind

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China’s new draft rules for microfinancing would set loan limits and enhance consumer protections. Photo: AP

Published: 8:00pm, 26 Aug 2024Updated: 10:43am, 27 Aug 2024

China’s financial watchdog has taken a step further in setting standards for the microlending industry, placing limits on loans and bolstering consumer protection.

The National Administration of Financial Regulation (NAFR) released draft rules on Friday to tackle issues within microfinance firms, named in the draft as “lax management”, “high credit risk”, “excessive marketing”, “improper debt collection”, “illegal fees” and “the renting or lending of licences”. The rules will be open to public consultation until September 23, after which a final version will be approved.

The measures were announced as part of an ongoing campaign to clean up the microlending sector, itself an aspect of broader efforts by the world’s second-largest economy to stabilise its financial system.

In 2020, a notice on the oversight of microlending was issued by the now-defunct China Banking and Insurance Regulatory Commission, which will be replaced by the recent draft standards.

The new draft includes a rule capping online microloan balances at 200,000 yuan (US$28,074) per account for consumption loans and 10 million yuan (US$1.4 million) for business production and operation loans to “benchmark against similar standards in the banking industry” and prevent “irrational” overborrowing.

“Compared to banking institutions, microloan companies have a higher loan delinquency rate, and some have shut down due to poor management,” said the financial regulator.

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