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A Small-sum Lender's Success and Worries

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The processing was simple and fast. "As a local company, we usually know our customers and their guarantors well. It does not take us long to verify an applicant's conditions," Liu Yang said. "We haven't discovered any bad loans so far," he added.

"The small-sum loan company is much welcome by the small enterprises, especially in rural areas, because the products are tailored to their needs," said Yu Qian, deputy chief of Wenzhou People's Government Financial Work Division," It does not ask rigidly for a mortgage, it is simple in processing and quick in delivery, and allows the client a free choice of terms of payback. It will become a challenge to established banks, forcing them to do a better job in serving grassroots clients."

Fund shortage was a common problem the eight SSLCs now had. An SSLC's registered capital was usually between 100 and 200 million yuan. They were forbidden to absorb deposits, but allowed to raise from banks a fund no more than 50 percent of the registered capital. That money was normally provided by state banks and was often late to come. Liu Yang said they had applied to the local branch of Agricultural Bank of China. The money was likely to be delivered within weeks.

It would not be sufficient, though, to meet the strong market demand. "A solution is to raise the 50 percent limit of our own financing to, say, 100 percent," said Yang Shenghua, CHINT SSLC deputy general manager, "Or to lift the restriction completely, so that we may develop into a specialized lending company."

The ceiling for small loans was also a problem. Wenzhou people were known in the country for their daring, shrewd business operations. The region was relatively rich among China's cities. "The 500,000 yuan limit was inadequate for many small enterprises here. Two million yuan would be an appropriate mark," Yang said.

According to government regulations, 30 percent of the lending of an SSLC may be handed out above the limit. But a single loan should not be more than 5 percent of the SSLC's seed money.

China's financial sector was highly controlled. An SSLC was, in general, jointly invested by a host of companies that had a desire to make inroads into the financial business. The government said after one or two year's of operations, some SSLCs might win permission to become township-level banks, if their operations were strictly up to the norms.

In the case of CHINT SSLC, the consortium led by CHINT, a big producer of electrical apparatus, beat a dozen or so competitors to win the government quota for the area. CHINT had a 20 percent stake in the company. The rest was divided among 13 companies and two individuals.

The two persons were Liu Yang and Yang Shenghua. They both had lengthy banking experience. The SSLC was constructed in accordance with the standards for a bank. And the two GMs were careful about training the seven young staffers to be professionally competent. The company also strictly abided by the rules of no deposits, restrained interest rates, and the 7-3 ratio for small and bigger loans.

"We have no idea whether our company may be approved to become a bank in the future," Liu said.

The bank status would lift the above restrictions on an SSLC, and reduce to a significant extent its tax burden. Regarded as a company now, an SSLC had to pay a number of taxes at high rates. Although an SSLC was allowed to provide loans at interest rates higher than the bank's, deducted by the taxes, the yearly investment return would be around 7 percent. The corresponding average figure for most business undertakings in Wenzhou was 30 percent, Liu said.

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