Small loan companies: potential and challenges coexist

Since 2009, China's small loan industry has begun to rise. After four years of development, the industry can be said to have flourished. According to statistics from the Central Bank, as of the end of March 2013, there were 6,555 small loan companies nationwide, with a loan balance of 635.7 billion yuan, and new loans of 43.4 billion yuan throughout the year.

Recently, Deloitte released a report titled "Challenges Facing China's Small Loan Companies and Solutions," showing that the booming demand for financing and consumer credit for small and micro enterprises in China is far from being met. According to Deloitte's market research results in Southwest China, among the more than 50 small and micro business owners who have become customers of small loan companies, more than 95% have applied for loans from banks, but only 45% are successful.

Due to the difficulty in financing small and medium-sized enterprises, small loan companies have developed rapidly in recent years, and some regions have already seized the market. A business manager of a small loan company in Chongqing said that in the past, there were only a few companies doing small loan business, but now it has increased a lot. It used to be several customers of one company, but now it may be several companies competing for one customer.

From this point of view, the small loan industry provides a Good financing channels are becoming an important source of capital turnover for them. However, the development of small loan companies faces many challenges. In addition to the fierce competition in the industry that every company faces, small loan companies also face an important leverage issue.

According to the "Guiding Opinions on the Pilot Program of Small Loan Companies" issued by the China Banking Regulatory Commission in 2008, small loan companies can only borrow from no more than two financial institutions, within 50% of their paid-in capital. Moreover, when various localities introduce micro-loan regulatory measures, they often set an upper limit on their paid-in capital. For example, the upper limit in Guangdong is 200 million yuan. Constrained by these policies, the liabilities and equity of small loan companies are restricted, and limited assets constrain their expansion capacity, which directly affects the space for their business development.

Faced with the challenge of leverage, the small loan industry has been seeking solutions to seize the huge market demand and seek better development. Recently, Jiangsu Wujiang Luxiang Rural Microfinance Co., Ltd. submitted an IPO to the U.S. Securities and Exchange Commission (SEC). Market cap of $76 million. According to the prospectus, the company expects to raise $18 million. It plans to increase its secured loan capacity and registered capital by $13.996 million, $1 million will be used for general working capital, and the remaining $500,000 will be used for investor relations maintenance.

The market has been discussing whether listing financing can successfully solve the leverage problem. The vice chairman of Shanghai Small Loan Company believes, "It is not surprising that the financing channels are narrow, and it is not surprising that small loan companies have the idea of listing. From the perspective of small loan companies, there are opportunities to raise funds during and after listing, expand the shareholder base, and increase the company's stock market. In addition, listing can improve the market position and popularity of enterprises, and win the trust and goodwill of customers. After listing, the transparency of enterprises will increase, and it will be more beneficial for small loan companies to negotiate loans with banks.”

The general manager of another small loan company said, "Capital management and operation have a strategic position, which is related to the survival and development of an enterprise, and is the key to the realization of higher strategic goals. Or the U.S. market has become a more feasible path."

However, considering the differences in the original intentions and development strategies of small loan companies, not all small loan companies seek to go public to solve their problems. For some small loan companies, it is more attractive to develop into village banks. Chen Kaiyun, chairman of Wenzhou Cangnan Lianxin Small Loan, said that it is difficult for village banks to absorb savings, the loan speed is relatively slow, and the loan conditions are still the same as those of banks, which are not competitive. Therefore, turning small loan companies into village banks is the most effective way to improve their market competitiveness. This approach can not only help small loan companies solve the leverage problem, but also inject vitality into the development of village banks.

However, regulators also have their own concerns about switching to village banks. Analysts have pointed out that the problem that village banks need to solve is the difficulty of obtaining loans for agriculture, rural areas and farmers in the county. After the transformation, it may go against the original intention of the village bank.

In addition to the efforts of the small loan companies themselves, the more important thing is the support of policies. Recently, the Guangzhou Municipal Finance Office issued the "Guangzhou Small-sum Refinancing Company Business Trial Measures" and its detailed rules. Small-sum re-loan company means that a "re-loan company" is established to directly lend money to small-loan companies in Guangzhou area, and it can organize small-loan companies to do "interbank lending", and can also purchase and transfer the credit assets of small-loan companies. The first two focus on increasing debt and increasing leverage, and the last measure is to speed up capital turnover and expand business volume. In addition, re-lending companies can also dispose of non-performing loans of local small loans, provide consulting services and bill discounting services.

The implementation of re-lending companies can help small loan companies solve the long-standing leverage problem, and can also effectively monitor other development problems in the industry. However, the formation of re-lending companies is a big problem. According to industry insiders, companies that carry out re-lending for small loan companies must have strong financial strength and should be led by large local financial groups. Since the "Measures" have just been promulgated, it is still unknown whether they can be successfully implemented and implemented.

The small loan industry is undoubtedly a hot industry in China. While helping small and medium-sized enterprises to obtain financing, it also faces many challenges. However, for such an industry with unlimited development potential, the industry is constantly seeking solutions, and at the same time, it is also expected that the government will introduce effective policies to help the industry develop healthily.