Wenzhou Minshang Bank, one of China's first five pilot private banks, started operations on Thursday, a move which analysts said will help finance the country's cash-starved small businesses and spur reforms in the financial system.

The bank completed its first credit business on Thursday, offering a credit loan with 300,000 yuan ($48,285) to Jiangda Electronic Co, a Wenzhou-based electronics and aluminum foil producer.

It is the first of five pilot private banks to officially start its business after getting approval.

In the second half of 2014, China Banking Regulatory Commission (CBRC) approved the establishment of five pilot private banks.

Tencent Holdings' WeBank, also in the pilot program, started its trial operation in January.

Compared with WeBank, which is aimed at offering flexible online financial services nationwide without setting up physical branches, Minshang Bank is expected to target small and medium-sized enterprises (SMEs) in Wenzhou as well as residents in rural areas, according to the CBRC.

The bank currently just has its headquarters in Wenzhou and no other branches for now, the Guangzhou-based Time Weekly reported on Tuesday.

Wenzhou, home to more than 300,000 SMEs, has seen extensive local private lending activities as companies find it hard to get adequate financial support from traditional financial institutions.

Wenzhou has seen numerous problems with private lending in recent years and during a credit crunch in 2011, many private business owners in Wenzhou were reported to have disappeared or declared bankruptcy, causing increased concern over private lending.

Entrepreneurs in Wenzhou welcome the private bank, which is expected to act as a new financing source for SMEs and reduce the risk of private lending, Zhou Dewen, president of Small and Medium Enterprises Development Association in Wenzhou, told the Global Times Thursday.

The SMEs in Wenzhou are suffering a difficult time amid a slowing economy, and the current lack of financing support is one of the major reasons for operational difficulties, Zhou said, adding the establishment of a private bank in Wenzhou is necessary for spurring economic growth and financial reform.

On Thursday, the local authority in Wenzhou announced a guideline on deepening financial reform, which includes 12 items such as improving rural finance and supporting Internet financial innovation.

The establishment of Minshang Bank is one of the more important aspects of Wenzhou's financial reform and would help to accelerate reforms nationwide, Zhou said.

But as a pilot private bank, Minshang Bank still faces operational difficulties in some areas including attracting deposits as people might have concerns over putting their money in private banks without a deposit insurance system, Tan Ruyong, a professor of finance at Shanghai University of Finance and Economics, told the Global Times on Thursday.