China may impose licenses for online consumer lenders, dousing the explosive growth in fintech

China is considering the tighter regulation of online consumer lending, a move that could hinder the fast-growing industry, which provides the country’s unsophisticated borrowers with billions of yuan in credit.

The discussion among regulators involves the issuing of licences to eligible fintech groups, and taking a harder line on the charging of annualised interest above the legal maximum limit of 36 per cent, sources close to the matter told the South China Morning Post.

An entry threshold should be in place for all financial service providers, said Huang Yiping, director of the Digital Finance Research Centre at Peking University and member of China’s central bank monetary policy committee, after a recent visit to fintech firms in the US and comparative studies between the countries.

“Although regulation is no guarantee for [a] risk-free [industry], huge risk will definitely loom where there is none at all, as we have already seen over the past few years,” Huang said during a presentation on Saturday. “As the financial sector itself is built on asymmetry of information, risks once formed up are easily conductive.”

Huang’s remarks echoed those of the People’s Bank of China governor, Zhou Xiaochuan, who called for “both pre-emptive measures and reactive solutions” to curb systemic financial risks in an article published over the weekend, to help the public better understand last month’s party congress report.

Platforms that provide micro loans have mushroomed in China since 2009, a year after the subprime lending blowout strangled the US economy and led to a worldwide financial crisis. While Chinese regulators, concerned about non-creditworthy borrowers, cranked up scrutiny on consumer loans, this gave online lenders a niche to build their market.