Shanghai is encouraging more foreign companies to set up microfinancing operations, the city's financial authority said on Monday, ahead of the opening of the first such organization in the municipality.
As many small companies have had difficulty borrowing from mainstream banks since last year, amid global weakness and tight monetary policy, demand for loan companies has grown.
Fan Yongjin, deputy director of the Shanghai Municipal Office of Finance Service, said the Hong Kong-based United Asia Finance Ltd had received approval to set up a joint venture lending firm in Shanghai, the first microloan company in the city with an overseas investor.
Other financial institutions from Hong Kong, and some from France, have also expressed interest or made preparations to open a loan branch, Fan said.
To be approved to conduct such business in Shanghai, an applicant must have experience and standing in the microloan industry, Fan said.
Earlier reports said that UAF, a member company of Sun Hung Kai & Co Ltd, a Hong Kong-listed company, will hold 70 percent of the equity in the new lending company.
However, a senior official at UAF's Shenzhen branch said that no decision had been reached yet.
"We just got permission to open this company, so how much of a share UAF is going to take, and the specific services it will offer, are still unknown," said the official.
UAF opened the first microlending company in Shenzhen in 2007. Without collateral or a guarantor, the company can lend 600,000 yuan ($95,000) to small companies or individuals.
Overseas banks and financial institutions have become increasingly interested in China's small-loan business. Since last year, several lenders backed by overseas capital have opened in second-tier cities, including Dalian, Chongqing, Wuhan and Shenyang.
In April, Fullerton Credit Services Co, a subsidiary of Singapore-based Temasek Holdings, became the first wholly foreign-owned capital loan company to set up a chain of branches in Wuhan. It serves small companies with annual sales below 60 million yuan.
Small- and medium-sized enterprises create about 80 percent of the country's jobs, and pay a lot of taxes, but they usually have trouble borrowing from banks, which prefer larger companies, especially State-owned enterprises.
The State Council said earlier this month that China would accelerate the development of small financial institutions.
The nation would also ease restrictions on the use of private capital, foreign capital and funds from international organizations in the establishment of financial institutions of this type, the council said, to relieve the financing problems faced by many of the smaller companies.
Source:china.org