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Bottleneck for small loan companies

07-13-2010 09:14 BJT

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It's been two years since East China's Zhejiang province piloted small-credit companies. How are these providers of small loans doing?

Zhejiang Xiangmeizi is a company specializing in the production of braised food. Last year, the world financial crisis took its toll on the company's finances. Production came close to stopping and the company was desperate for a 3 million yuan loan.

Huang Youping, President, Xiangmeizi Food Co., Ltd., said, "We turned to a few banks and resorted to small loan companies. None had enough to lend us."

Cangnan Lianxin is one of the small loan companies in Zhejiang. It has usable capital of 130 million yuan. But even this amount is far from enough.

Zhu Liangjian, General Manager, Cangnan Lianxin Small Loan Company, said, "We lent nearly all our money in just 20 days. It's all we had."

Small loan providers in Zhejian are not allowed to collect deposits like a bank does or raise funds from the public. So most of these companies have to borrow money from banks.

Dai Jukang, Deputy Head, China Banking Reg. Comm. Jinhua Brach, said, "Eight of the eleven small loan companies in Jinhua have asked for credit support from banks. The total money borrowed has reached 395 million yuan."

However, this is still far from enough. Small loan providers are craving for more capital.

Jin Xiangyang, Geeral Manager, Jinhua Wantong Small Loan Company, said, "We want our stakeholders to pour in more capital and banks can lend us more. More sources of funding can be made available to us."

Because small loan companies have to borrow money from banks, the loans they provide come with a much higher interest rate than state-owned banks.

Another factor that has also driven up the costs of applying for small loans. At least 20 percent of the interest is taxable. This ratio is also much higher than what the state-owned banks enjoy.

However, state-owned banks are traditionally reluctant to issue loans to small and medium sized firms. That has left private businesses with little options but to turn to small loan companies.

Editor:Zhang Jingya |Source: CNTV.CN

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