The 50-percent limit on micro-finance companies' bank financing ratio won't be eased in the short run, according to Zang Jingfan, head of the cooperative finance supervision department of the China Banking Regulatory Commission.

"It is not good timing to increase micro-finance companies' current ratio since they may pass their risks over to banks," Zang said in an interview with 21st Century Business Herald after the Tsinghua China rural financial development forum last week. His comments came amid recent calls for raising the ratio.

Micro-finance companies have two ways to raise funds, the first is from shareholders and donations, which are both hard to increase, the other is financing from at most two banks.

Current rules, however, impose a 50-percent limit on the companies' balance of bank financing against their net capital, restricting their plans to expand amid constrained funding sources.

Commenting on the calls, Zang said micro-finance companies can still ease the difficulty of financing by increasing their capital funds or granting short term loans for more efficient use of the funds, rather than simply depending on borrowing money from the banks.

He Guangwen, a professor with the School of Finance at China Agricultural University, disagreed with Zang's idea and suggested easing the limit on the bank financing ratio, saying that the 50-percent limit obviously lowered the financial leverage of the micro-finance companies, which made it hard for these companies to raise money and to increase profits.

Jiao Jinpu, former deputy chief of the research bureau under the central bank, echoed some of He's ideas and added that the 50-percent limit on bank financing was reasonable at the micro-finance companies' starting stage, while as these companies grow the limit should be eased step by step to meet their growing demands.

The bank financing ratio can be 100 percent and even 200 percent when the time is ripe, according to Jiao.

Some even suggested the regulator should allow micro-finance companies to take deposits, which seemed impossible to Zang.

Micro-finance companies were companies that can only issue loans, if they were granted to take deposits they will be confused with commercial banks, Zang said.

(chinadaily.com.cn June 19, 2009)