China Plans Legalising Private Lending

Feb 2010
Beijing, China, February, 26 2010 - The People's Bank of China (PBOC) plans to remove a ceiling on rates charged by micro-lending firms and legalise the existence of some non-bank private lending institutions, a central bank official said yesterday.

The plans come as China's government is seeking to boost the development of the private sector, which has traditionally been at a disadvantage in accessing loans from the largely state-dominated banking sector.

Mr Zhou Xuedong, director-general of the central bank's Law and Regulation Department, said the PBOC proposed removing a rule that has been in place since 1995 capping micro-lenders' interest rates at four times the benchmark lending rate.

He said in practice many micro-lending firms' interest rates exceeded the ceiling, which was put in place because the government wanted to protect poorer people living under an immature social security system. But he added the situation has since improved, so a rule change would be appropriate.

The PBOC plans to let micro-lending firms borrow money worth no more than two times their net capital from up to two financial institutions and one non-financial institution, in comparison with the previous ceiling of 50 per cent of their net capital, he said.

Source : Today

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