Asia: China’s government tightens rules on online micro lending

China’s financial authorities recently announced new regulation governing the fast-growing online micro-lenders in the country. Due to the proliferation of internet and smartphone access, as well as rising affluence in the country that has encouraged an overall increase in spending, there has been a proliferation of micro-lenders offering quick, easy cash through mobile applications.

These organisations have lax credit requirements allowing customers who often do not meet lending requirements to get a loan approved. Previously, there was little regulation around this practice, allowing companies to charge high-interest rates and leaving customers in a cycle of debt.

Under the new rules, unlicensed organisations and individuals will not be allowed to lend money and licensed organisations will be required to first assess the consumer’s ability to make repayments before offering them the loan. Lenders must also clearly explain the terms and conditions of the loan, and limit the interest rate to the maximum of 36% annually.

The new rules also regulate consumers’ data privacy and forbid the organization to disclose or sell its client’s information. Apart from just regulating the institutions offering direct loans to end customers, banks will not be allowed to provide lending to unlicensed institutions nor invest in asset-backed securitisation products supported by cash loans, campus loans or property down-payment loans.

According to RFi Group data, there has been an increase in intention to spend among the urban banked population in China. Around 35% of banked customers in China intend to spend more in the next 12 months, up slightly from 33% 18 months ago. Seemingly, the upward trend to spend more feeds into the rising popularity of online microlending in the market, which further requires government’s action to regulate its growth.

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