Companies offering small loans to rural businesses are expected to start operations in October in Shanghai's 10 areas, according to new rules on Wednesday.

The areas are Pudong New Area, Baoshan, Minhang, Songjiang, Jinshan, Qingpu, Jiading, Fengxian and Nanhui districts and Chongming County.

These areas should first apply to the Shanghai Financial Services Office, the main regulator, to set up the small-loan firms.

After gaining approval, the areas can start to seek investors.

To set up such firms, investors, which must be companies and not individuals, should be registered in the areas with net assets of no less than 50 million yuan (US$7.3 million). Their asset-liability ratio should not be more than 70 percent.

Investors are also required to make combined profits of more than 15 million yuan for three straight years.

For investors in Chongming, such requirement can be lowered, the Shanghai Financial Services Office said yesterday, without elaborating.

A small-sum loan company should have a minimum registered capital of 20 million yuan if it is set up as a limited liability company. The requirement goes up to 50 million yuan for a joint stock entity.

A small-loan company in Chongming also enjoys preferential policy, for example, the threshold for a limited liability firm drops to 10 million yuan while that for a joint stock company falls to 20 million yuan.

These companies are encouraged to offer loans to rural family-run businesses and mini-sized enterprises in the area they are located.

A single loan can't exceed 5 percent of the total net capital of a small-loan company.

Also up to half of a small-loan firm's total number of clients can have an outstanding loan of more than half a million yuan each.

(Shanghai Daily September 4, 2008)