Tech advances expand credit market horizons

By Dong Tongjian Source:Global Times Published: 2014-7-27 17:18:01

Regulators encouraged to foster development of online banking


Illustration: Chen Xia/GT



As its footprint within China's financial services industry widens, Alibaba continues to remain outside the reach of China's banking regulators. Last week, the Hangzhou-based online powerhouse teamed up with seven major Chinese banks to offer loans of up to 10 million yuan ($1.61 million) to each qualified vendor using the e-commerce company's B2B platform, a marked increase from the 1 million yuan credit limit set back in 2011.

By using data gleaned from Alibaba's trading platform, OneTouch, participating banks can quickly assess the creditworthiness and risk profile of vendors applying for loans. With the recently raised loan ceiling, many are once again touting the revolutionary potential of big data and other technological innovations when it comes to improving credit conditions for China's small and medium-sized enterprises (SMEs). At traditional banks, loan officers can spend hours, days or even weeks to review a single loan application. This hassle, compounded by a lack of reliable credit records, has long led many of the country's retail lenders to reject loan applications from all but the biggest State-run enterprises.

Against this backdrop, loan partnerships between banks and Internet companies could be a boon for credit-starved SMEs. As of right now though, services like Alibaba's have managed to skirt direct oversight by China's banking watchdog, since the company is only using its data to bridge the information divide which separates SMEs and regulated retail lenders. To encourage financial innovation and industry breakthroughs, relevant authorities should green light privately owned banks which can function as stand-alone institutions.

In fact, Alibaba has already filed an application with banking industry supervisors in Zhejiang Province to establish its own bank. To date, the application is still under review - although, considering the proposed institution's departure from the mainstream financial services industry, insiders have suggested that authorities are in no rush to make an approval. If such views are accurate, authorities should stop dragging their heels and give private banks a shot at filling holes in China's current credit market.

As of the end of 2013, China's 11.7 million micro- and small-sized enterprises accounted for 76.6 percent of all businesses nationwide and generated 60 percent of domestic GDP, according to information released in March by the State Administration for Industry and Commerce. Yet, only some 12 percent of SMEs were experiencing rapid growth, according to the administration. Behind this disappointing figure, imbalances in China's social capital structure loom large.

Of course, China has seen progress in certain areas. In 2007, the country's first unsecured peer-to-peer loan platform was established in Shanghai. By 2013, China had some 800 such platforms, which handled loan transactions totaling 100 billion yuan during that same year, according to the results of a survey conducted by business intelligence provider ResearchInChina.

Alibaba's data-backed forays into the online credit market lay what looks to be a very solid foundation for its banking ambitions. Authorities may be squandering a prime supplement to earlier measures aimed at supporting SMEs - to boost the real economy, the People's Bank of China (PBC) last month announced a reserve requirement ratio cut of 50 basis points for banks which actively lend to small-scale businesses and agricultural enterprises.

It isn't hard to see why so many banks have gotten on board with Alibaba's online loan service. The majority of the e-commerce titan's B2B vendors are SMEs: the very businesses that banks will have to lend to in order to qualify for the PBC's targeted rate cut. And with data from Alibaba smoothing credit risk, banks can access a virtual untapped corner of the loan market with less fear of repayment trouble.

The continued development of the online lending industry will hinge on government support and the strengthening of related legislation. Without solid legal and regulatory frameworks, online financial service operations will never become part of the industry mainstream.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn

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