The online cash loan industry is growing rapidly in China, boosted by the country's expanding consumption power. But problems have also arisen, as small lenders that do not hold licenses have rushed in and offered loans to borrowers without pre-selecting, driving up financial risks. As such, authorities have been drafting rules to fend off such issues, and a nationwide crackdown has already started, firstly by suspending new license issuances. Analysts predict that the new regulation could also focus on setting up a unified standard for issuing licenses, reducing the industry's high leverage ratio and limiting maximum annual interest rates.
A nationwide crackdown on China's fast-growing small and unsecured online lending sector, known as "cash loans," is underway.
In recent days, the People's Bank of China (PBOC), the country's central bank, along with the Financial Stability and Development Committee under the State Council, China's cabinet, has sought advice from local financial authorities and drafted detailed plans to tighten grips on the sector, weekly financial news publication Caixin reported on Monday.
Following the move, the online cash loan sector could face the most "stringent-ever supervision" in the coming months, said the report, quoting a source close to the matter.
"Small lenders who have not been granted licenses are being ordered to immediately stop offering loans. And even for those that have already obtained permits, the government is likely to review their qualifications under the new rule regardless," said the source.
As the start of the crackdown, the National Internet Finance Association (NIFA) issued an urgent notice on November 21, restricting the granting of new approvals to micro-loan firms and stressing that small lenders should not operate cross-provincially, the Xinhua News Agency reported.
Later on November 22, the PBOC, officials from the China Banking Regulatory Commission and local governments from 17 provinces held an emergency meeting to discuss developments and regulations involving the online lending sector, financial news website yicai.com reported.
On Friday, the NIFA urged "unqualified institutions to stop using deceptive advertising to attract clients, conducting coercive debt collection as well as charging high interest rates and fees," a warning notice on its website said.
Chinese online finance firms are waiting anxiously for the new regulation, gauging its inhibiting effect on their businesses.
An executive from a lending firm based in Southwest China's Chongqing Municipality said that "the company has convened several closed-door meetings to discuss different plans under possible policy directions," said the Caixin report.
While the regulation looms, shares of U.S.-listed Chinese small lenders have been plummeting in recent weeks. For example, Qudian lost 24.3 percent on Friday, while two other online lenders, Jianpu Technology and Yirendai, lost 15 percent and 10 percent, respectively, during Friday's closing.
Mounting risks
China's cash loan sector was brought into the spotlight after online provider of small cash credit products Qudian became listed on the New York Stock Exchange on October 19, arousing domestic investors' appetites.
On the day Qudian was listed, the company's share price surged by more than 20 percent from its initial pricing, raking up a market capitalization of $10 billion. And according to its IPO prospectus, the company's profit by the end of the third quarter also stood at 650 million yuan ($98.38 million), up 321.8 percent year-on-year.
