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A Small-sum Lender's Success and Worries

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It was well known that businesses in Zhejiang wanted to borrow money, so it was surprising that the loans company office was so quiet. But three months ago things were different.

The CHINT Small-Sum Loan Company (SSLC) opened for trial operation on December 11. "The phones kept ringing in the first few days," general manager Liu Yang said, "Our registered capital, 200 million yuan, was handed out in a little more than a month. We're short of funds now, because we are not allowed to raise funds through deposits."

"These days we take the opportunity to further train the staff," Liu Yang said with an embarrassed look on his face.

Small-sum loan companies are a new idea in China; a semi-financial institution allowed to join the country's tightly controlled system only in the past year. It's an experiment. Zhejiang Province was the trial area and CHINT SSLC was one of the eight trial companies in the southern coastal city Wenzhou.

Gao Yongfei, owner of Wenzhou's second largest pig farm, learned about CHINT SSLC on TV. He was very worried then about borrowing money to buy feed for his 930 pigs. He called CHINT SSLC without delay. A man's voice on the other side of the phone said "Yes" to his loan request, but asked that he find a reliable, wealthy friend as guarantor.

"I feel relieved," Gao recalled. One of his friends, owner of a big company, agreed to help. Gao got 500,000 yuan two days later. Processing of the lending documents at the CHINT SSLC office took about 20 minutes.

"If I got the money late, and if the weather turned cold or heavy snow came, the pig feed might not be delivered in time. And the pigs would go hungry," Gao Yongfei said.

Prior to this, Gao had tried in vain to borrow from the local Rural Credit Cooperatives. The established grassroots financial institution demanded a mortgage of housing or land. Gao rented the 36 mu (2.4 hectare) land to build the pig farm and his housing was prohibited by law from sale. He had borrowed two million yuan from a friend at the monthly interest rates of 2.5 percent. The CHINT SSLC loan demanded a monthly rate of 0.99 percent.

With SSLC the government aimed to introduce an effective means to cater for the financial needs of small and medium-sized enterprises, which are the backbone of the national economy and job security. According to the first national general economic survey small- and medium-sized enterprises, by the end of 2004, provided 81.89 percent of enterprise jobs.

The government regulations require a small-sum loan company to provide 70 percent of the money in small lending not exceeding 500,000 yuan for each loan. CHINT SSLC delivered such small loans to 329 clients and the remaining 30 percent of the fund to 18 clients.

Over 90 percent of the lending was based on guaranty, by dedicated agencies, or reliable companies or individuals. Liu Yangsaid they accepted company presidents or chairpersons as underwriters of lending. But the company must be rated 2A or above in bank rankings of the company's credit records. Leading public service employees were also trusted. The amount of loan they were allowed to underwrite was limited to no more than 200,000 or 300,000 yuan.

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