China’s move to push the encouragement of lending to the smaller companies certainly created better business opportunities for the larger financial tech companies. Beijing currently struggles with a move to balance the crackdown on its high levels of debt, all the while maintaining its growth; Premier Li Keqiang and President Xi Jinping have made a public announcement to support the privately operated companies. The country’s central bank recently freed up some cash to be lent to these firms.
The government also eased down the rules that help small firms to obtain funds. Even after this, business environment, especially in financing, tends to favor the state-owned companies. This is despite the well-known fact that the private sector tends to contribute to a major section of economic growth and job creation inside the country.
However, there is ample money that can be made by ones that are willing to provide money to the smaller businesses. As confirmed by WeBank, the online lender, about 80 percent from 90 million micro and small-sized enterprises based in China don’t have access to credit from the bank. This is where fintech comes into the scenario.
With the help of Chinese Tech giants, WeBank and MYbank can use a chunk of the payment information as well as the data from the social network in order to ascertain a business’ ability to pay the loans back. This is the type of basic information on credit that is unavailable with private sector firms. This is why most traditional banks tend to prefer lending money to well-known, state-owned enterprises.
Back before the inception of these online banks, the traditional banks were unwilling to provide financial help to small business owners. This was given the lack of any potential collateral, greater risks, and limited profitability. The process involved in opting for loans from the traditional banks is too slow as well as complicated. This doesn’t leave the small firms any other option as to reach for lenders that charge higher interest rates.
Contrasting this scenario, opting for loans via online services in China requires few minutes. The average loan size for medium and small businesses over MYbank is close to $1469. According to the latest figures acquired in September 2018, about 9.78 Million small businesses acquired a total of 1.19 Trillion Yuan as loan amount provided through an online platform. Now, Tencent-backed online lender WeBank is also picking up speed and expanding the business with micro & small-sized enterprises.