BIZCHINA> Review & Analysis
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BIZCHINA> Review & Analysis
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Private lending can open up credit market
By Ma Hongman (China Daily)
Updated: 2008-11-19 11:46 The relevant regulations stipulate that the practitioners should possess banking business experiences and should have a certain level of academic background. However, for a majority of these lending bodies, what they have resorted to is a skillfully utilized network of social relations as a main means to monitor possible financial risks in their business. This kind of risk control model, although very different from the models used by bigger commercial banks, has proved highly efficient in the smaller-scale unofficial credit market. Take an obscure cooperative bank in Wenzhou, Zhejiang province as an example. The eastern coastal province is well known for its booming middle and small-sized enterprises. The rural cooperative financial body, set up in June 2005 and with nearly 4,000 farmers among its 4,639 shareholders, extended a total of loans worth 4 billion yuan last year, 60 percent of them flowing to rural areas. The bank achieved a profit of 112 million yuan the same year. Its great success has made establishment of similar financial agencies the most tempting investment target in the city. One of the effective measures used by the bank to minimize its potential risks is to put any borrowers with bad credit records on a blacklist, which, alongside others, will contribute to the defaulters being deserted by the local society. The outstanding business achieved by the Wenzhou rural cooperative bank, managed by not so highly educated shareholders, fully demonstrates the existence of financial wisdom at the grassroots. It is true the government should set some entry standards for the unofficial credit business from a long-term perspective. But the authorities should also try to extend some preferential polices to the fledgling sector in its transition to formal financial bodies. The opening of the sector will surely help the country's struggling medium and small-sized enterprise to survive the financial winter ahead. (For more biz stories, please visit Industries)
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