Today, State Council of China issued a communique titled “Guidelines on internet loan information exchange transitioning into micro-loan companies“.

In the document, the government stipulates processes and requirements for the transition of P2P platforms into proper lending companies.

The key requirement is – the company needs to have CNY1 billion (US$142 million) paid up capital to be able to operate nationally. The paid up capital needs to come from the shareholders, and at least 50% must be paid in at registration.

The paid up capital for regional companies is at least CNY50 million ( US$ 7 million). However for a platform to be scalable, you pretty much need to be able to accept customers across regions, or even nationally.

National companies need to be assessed and approved by the central government.

The Communique also specifies that if the existing shareholders do not have strong risk tolerance, new shareholders must be introduced. The companies transitioned from P2P platforms must not give any dividends to shareholders within the first 3 years of operations.

The communique also encourages the companies to take reasonable leverage, and use credit bureaux. The gearing ratio is limited to 4X, if securities are used.

The communique requires local governments to finish the assessment by end of December 2019, and issue provisional licences for new companies by end of January 2020 – a very tight timeline.

 

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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