China is considering formulating regulations on informal lending
to better regulate the country's financial market, said Jiang
Dingzhi, vice chairman of the China Banking Regulatory Commission
(CBRC) Friday.
To lay down relevant regulations together with other relevant
ministries is conducive to the country's financial stability,
especially in the countryside and providing better financial
services there, said Jiang at the 2007 China Rural Finance
Forum.
Informal lending means lending between individuals, between
enterprises, and between individuals and enterprises, as opposed to
lending by financial institutions, explained Luo Yuzheng, an
official in charge of loans business from eastern China's Ningbo
branch of Bank of China.
"For example, a township enterprise needs to pay a 7.29 percent
interest rate to get loans from the bank and it also needs
mortgages and some surety. If the enterprise doesn't have good
credit, the interest rate may also float upward," added Luo.
Against the background of the country shifting its monetary
policy from "prudent" to "tight", it may become more difficult for
those enterprises with low credit to get loans from the bank, he
said.
Access for Chinese farmers and rural enterprises to raise funds
for their businesses is still limited. Some farmers and enterprises
may turn to informal lending due to a more favourable interest rate
or simply wanting to avoid procedures of being granted the loans
from banks.
Official figures show Chinese farmers rarely obtain loans of
more than 5,000 yuan (675 U.S. dollars) from banks, leading to the
existence of some underground banks and usurious loans, especially
in the rural areas.
Figures from the State Administration of Foreign Exchange showed
that more than 70 underground banks and illegal foreign exchange
swap centers were uncovered in 2006.
"In the rural areas, people's awareness of risk of lending is
weaker than that of urban dwellers and people are less likely to
move around for new jobs compared with cities, so informal lending
outside the banks is more common," Dr. Ou Minggang, the Deputy
Chief Editor of the Chinese Banker magazine, told
Xinhua.
This move of the industry watchdog on the one hand is to
strengthen financial supervision for informal lending, especially
in rural areas, and on the other hand to regulate the alternative
financing channel to the loans from banking institutions, added
Ou.
"The existence of informal lending is necessary, because it can
reduce the cost of both the lenders and borrowers and it is
efficient. However, this practice needs to be regulated and carried
out in an legitimate way," commented Ou.
The CBRC didn't reveal the timetable of when the regulation
would be implemented out.
(Xinhua News Agency December 10, 2007)
