Effective risk management key to making micro-financing commercially sustainable

Governments and commercial banks at all levels must join forces to explore various measures to make small business loans and financing commercially sustainable, to which effective risk management is the key, said China's banking and insurance regulatory officials.

"If the nonperforming loan ratios of bank lending to micro and small enterprises are high, banks cannot sustain this area of business, so lowering risks is the most crucial part of the financial reform of small business loans," said Cao Guangqun, Party secretary of the China Banking and Insurance Regulatory Commission's office in Taizhou, Zhejiang province.

Based on strong community networks, small commercial banks that specialize in small business financing services, including Bank of Taizhou Co Ltd and Zhejiang Tailong Commercial Bank Co Ltd, rely heavily on client managers to collect information about business owners from various aspects of their lives. The information includes details on their character, family relationships, children, and whether or not they gamble or invest in stocks.

Client managers of Bank of Taizhou Co Ltd visit an auto parts manufacturing company in Jiaxing, Zhejiang province, to monitor the use of loans. Provided to China Daily

Both small commercial lenders serving a niche market and large State-owned commercial banks' branches in Taizhou, a coastal city known for its robust business activities in the private sector, are stepping up exploration of risk management via a combination of big data analytics and client managers' thorough investigation of small business owners, according to Cao.

Greater involvement of large State-owned commercial banks in small business lending is also necessary, as their cost of capital is lower than that of smaller banks, said Cao with the China Banking and Insurance Regulatory Commission's office in Taizhou.

He emphasized that banks should follow strategies of differentiated competition in terms of small business banking according to their own characteristics and advantages, to avoid vicious competition.