Monday, February 13, 2012

China Daily on the State of Private Lending

Borrowers face costly payback
The Supreme People's Court deems private lending illegal when the interest rate is four times higher than that of a commercial bank. Yet, while the current average is from 6 to 7 percent a year, some underground banks are lending at an annual rate of up to 90 percent.
According to the survey of Zhejiang businesses, roughly 9 percent of respondents said they "frequently" borrow from private lenders to ensure cash flow, with 47 percent doing it "occasionally".
The most recent data from China's central bank also supports this theory. It stated that private lenders had loaned 3.38 trillion yuan ($536 billion) last year by May.
With the rising costs of labor and materials and the tightened bank policies, he said that the government crackdown on private lending had been the last straw. "We just hope something concrete can be done sooner or later," he added.
According to Zhou's association, Wenzhou until recently had about 160 private lenders and "guarantee organizations", which are companies or individuals who stand as guarantor on loan applications. Today there are no more than 20.
One lender, who gave his name only as Fu, said he will not even lend money to relatives nowadays, explaining that once the money is "out of my hand, I have little chance of ever seeing it again".
Nine out of ten lenders mostly bankrupt bosses will take the money and flee, he said, adding: "It's a vicious circle."

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