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What China’s clampdown on online microlending means for fintech giant Ant Group

Baron Li

14 Dec 2020

“Ant originates loans, 98 per cent of which are then underwritten by financial institutions or securitised. As of June 30, it was working with about 100 banks. Loans extended by banks through online platforms hit 1.43 trillion yuan on June 30, the PBOC said, equal to 22 per cent of personal consumption loans excluding mortgages and credit card loans.”

China’s financial regulators have drafted rules that clamp down on a booming microlending market in the world’s second-largest economy, a move that could curb the profits of the country’s fintech giants and stem the flow of funds to small businesses. The draft rules could dam liquidity flowing to parts of the economy that need it the most. China is recovering from the economic pain inflicted by coronavirus-related lockdowns this year, but small business owners and individuals are still struggling to obtain loans from traditional banks.

While regulators are seeking to reduce debt in the financial system, the draft rules could also crimp microlenders’ profits by piling on compliance costs, slashing the size of individual loans and requiring online platforms to contribute a larger share of loans instead of relying on traditional lenders’ balance sheets.

Yi Gang, the PBOC’s governor, said during a panel discussion at a Hong Kong financial technology summit on Monday that innovation by Big Tech companies had made microloans possible in China’s hinterlands. “That is a tremendous improvement,” he said. Yi also said that the PBOC had noticed commercial banks were using Big Tech companies’ services to find customers and depended on them for risk management.


Ant’s management likens China’s banks to the arteries of the economy, and Ant as the capillaries that send funds to its extremities – small businesses and individuals. A core plank of Ant’s strategy is to earn fees by providing a digital platform for banks to reach small borrowers and more accurately price credit risk. The company’s consumer and small businesses lending division generated 39.4 per cent of its revenue in the six months ended June 30.


Innovation by Big Tech companies has created a booming microfinance industry in China. However, the new rules on microlending will impact microfinance institutions adversely, curbing the profits of the country’s fintech giants and stemming the flow of funds to small businesses.

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