China is making a lot of headway in its drive to boost loans to small and medium businesses around the country. The government is banking on small tech startups to help it in its task. President Xi Jinping and Premier Li Keqiang were very vocal of their support for these small tech startups and for small to medium businesses in general.
The People's Bank of China, as well as other Chinese banks, have freed up some of their liquidity in the past few months to make it easier for businesses to borrow money. However, most banks do tend to favor state-owned enterprises more than privately-owned businesses. Private enterprises in the country account for a majority of the contributions to China's overall economic growth. Support for these businesses and easy access to loans is paramount to the country's continued success.
Small tech startups, such as MyBank and WeBank, both see potentially large profits in lending money to micro-sized enterprises. According to WeBank, more than 80 percent of the small businesses in the country do not have any line of credit. Bigger banks simply cannot mitigate the risks involved in lending money to relatively unknown business entities.
Smaller financial institutions such as MyBank, currently backed and financed by Alibaba, and WeBank, backed by Tencent, have access to more customer data via social media. Data gathered from different social networks and other sources can be used to ascertain a business' capability to pay back its loans.
Previous transaction histories with other financial tech companies may also be used to determine the kinds of loans businesses are eligible to get. Data gathered, with permission from users, on mobile payment systems such as Alipay can be used for this particular analysis.
Unlike traditional banks, the loan amounts made through these online financial institutions are also relatively smaller. Traditional banks often do not release loans that are less than a 1 million Yuan, which is more than what micro and small-sized businesses need. The process of getting approved is also much faster when compared to traditional banks that require collaterals and a lot of paperwork.
As of 2018, MyBank has reportedly released more than 1.19 trillion Yuan in loans to over 9.78 million businesses. WeBank, which launched its online-based lending platform in 2017, has acquired more than 200,000 customers in Shenzhen alone. According to WeBank, more than half of their customers are businesses in the manufacturing and tech industry. Before these products were available, smaller businesses like these had to go to other lending sources that charged very high-interest rates.
