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Small-sum loan business enters launch countdown
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Zhejiang will take the lead in the small-sum loan pilot scheme and the first batch of small-sum loan companies are expected to start business in early September, the Shanghai Securities News reported Monday.

According to a senior practitioner in the underground financing market, the upcoming pilot scheme is an unprecedented action taken by the government to integrate underground financing market.

Policy support in place

In May, the Chinese Banking Regulatory Commission (CBRC) and the People's Bank of China (PBOC) jointly promulgated the Guiding Opinions on the Pilot Operation of Small-Sum Loan Companies, clearing the way for a healthy and regulated development of such companies.

Later, the government of Zhejiang Province was reported to have released the Implementation Opinions on the Pilot Operation of Small-Sum Loan Companies to provide policy suggestions in details on the actual implementation.

Timetable decided

It is reported that Wenzhou-oriented capital totals as much as 600 billion yuan throughout the country. According to statistics from the Wenzhou Financial Service Office, Wenzhou's floating capital exceeded 300 billion yuan in 2007 and the number has been rising by 14 percent every year.

"On this basis, the floating capital in Zhejiang's major cities – Wenzhjou, Hangzhou, Ningbo, Taizhou and Jinhua – is absolutely more than 1 trillion yuan," one of the sources told the newspaper. This huge amount of capital is known as "grassroots finance."

Despite the flooding of liquidity in the private banking system, capital-hungry small and medium-sized enterprises cannot turn to it for help due to the lack of legitimate channels. How to successfully connect the two together is a challenge for the local government.

"Our primary concerns are legitimacy, regulation-compliance, security and orderliness," said an official with the financial department of Zhejiang.

An official from Wenzhou Municipal Government told the newspaper that the government has finished the operating regulations concerning the pilot scheme.

Fang Peilin, board chairman of Wenzhou Fangxing Guaranty Co. Ltd, has been busy planning a small-sum loan company over the past two months.

Fang, one of the representatives of Wenzhou's grassroots finance, was the owner of China's first legally registered private finance organization Fangxing Banking House. This private firm was seen as a miracle under China's huge policy barrier.

Over the past two months, Fang would come to his office early every morning and study the Implementation Opinions on the Pilot Operation of Small-Sum Loan Companies. Other than that, his major job has been visiting the local Banking Regulatory Commission and Financial Service Office and asking for information.

"A lot of companies in Wenzhou are thinking about establishing small-sum loan companies and many guaranty companies have been consulting with me on this matter since May," said Zhou Dewen, the chairman of Wenzhou Development Promotion Association for Small and Medium-sized Enterprises. He said that these guaranty companies all want to grab this great opportunity and transform to a small-loan company.

Wenzhou had its first guaranty company in 2001 and now it has the most guaranty companies in the country – more than 240.

Sources with the Zhejiang Provincial Government told the newspaper that the government will initiate the pilot scheme in July and start to review applicant materials in August. And in September and October, small-sum loan companies will finish registration and start operation.

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