Wenzhou Given Approval to Legalize Private Lending
Wenzhou has finally legalized private lending in their area as the Central Government was seeking to improve small companies to gain access to credit. Based on the Wenzhou Private Financing Regulation, detailed rules on the pilot program have been completed and were implemented Saturday.
The Wenzhou financial reform will underscore the Central Government’s recognition of the plight of smaller businesses that was been sidelined on its credit binge for the past few years even with the accounting of the 60percent output in the economy and 80 percent in jobs. Company failures were abundant in Wenzhou which led to some enterprises to pay interest as much as 7 percent to illegal lenders just to keep their businesses.
The regulation will allow lending using private capital management companies, but lending services institutions, financing information service firms and three types of intermediaries will not be allowed on the legal financial system anywhere on the mainland. These type of lending services have emerging in Wenzhou in 2012 after the State Council has approved a broader package of financial reforms that allowed it to act as a tester for liberalizing private lending,
During this time there were seven service center in Wenzhou that had a registered capital of 7 billion yuan and around 2.5 billion yuan in outstanding loans. During this time there is an 89 percent of household and 60 percent of firms that are involved in private financing that have a total capital of 110 billion yuan.