(Yicai Global) Dec. 15 -- Micro-loan groups may feel a squeeze as the China Banking Regulatory Commission barred consumer finance companies from funding institutions that do not have lending qualifications last week.
The policy document banning such activities ordered local banking regulators to issue risk warnings to consumer financiers in their respective jurisdictions, a CBRC branch told Yicai Global yesterday.
Under the new policy, consumer finance firms shall not issue loans to institutions that lack lending qualifications through peer-to-peer borrowing or other methods and shall not directly or indirectly invest in securitized products or ones that are sold with "cash loans," "campus loans," and "down payment loans" as underlying assets.
The so-called consumer finance companies are non-bank financial institutions established in China with the approval of the CBRC that do not absorb public deposits and provide consumption-oriented loans to individuals in that country, providing small amounts in a decentralized manner.
A consumer financing company owned by a local joint-stock bank in southern China cooperated with a cash loan platform by to set up an app, an employee of the finance group said. That company has not received a notice requiring it to stop working with the cash loan platform, the employee said yesterday.
A capital chain has formed among banks, consumer finance companies, micro-loan businesses and network loan groups, a source told Yicai Global.
Banks and network loan platforms use various business models such as the deposit model, the funding model and the joint lending model for lending, the head of internet finance at a joint-stock commercial bank told Yicai Global.
Under the deposit model, the loan aid platform is responsible for customer acquisition and risk control, mortgaging the deposit in the bank, while the bank, as the funding provider, negotiates with the platform on the interest rate. If a borrower defaults, the bank is compensated by the deposit of the loan aid platform.
Under the funding model, the bank provides the bulk of the funds, and the loan platform provides petty loans, and the parties share the risk.
In the joint lending model, the bank grants funds to the cash loan platform, which makes loans itself. The bank does not interfere with where the funds go or risk control.
As regulators control cash loans from the fund source, once many cash lenders go bankrupt, the financial risk may be great, an experienced insider from the Internet Finance Department said.
Banking institutions cooperating with third-parties on loan businesses may not outsource its core activities such as credit evaluation and risk control, per the document published last week.