Chinese internet giant Baidu’s micro loan unit seeks 786m yuan through asset-backed notes

Baidu’s micro finance unit has applied for a quota to raise up to 4 billion yuan (US$602 million) through issuing a form of securitisation, called asset-backed note, in China’s interbank bond market.

The loss-making consumer-loan company, translated as Chongqing Baidu Micro Finance and focuses primarily on granting private tutoring loan, is seeking to raise 786 million yuan, according to the offering documents, in its first such interbank transaction, which if approved would translate to about one-fifth of the total quota.

Chongqing Baidu Micro Finance is licensed as a non-bank micro finance company. In China, these companies have been filling the gap left behind by banks in lending to the underserved segments, such as micro enterprises and small and medium-sized enterprises.

But more recently, the use of non-bank micro finance licences to provide consumer lending – in this case, instalment loan for education and private tutoring – underlines how these non-bank lenders are responding to the growing demand for retail consumer loans.

Others, such as Ant Financial’s “Ant Check Later”, have also used their non-bank micro finance licences to offer consumer instalment loans, financing both online and offline consumption. These internet finance companies often use big data processing, and mobile payment applications to enable them to underwrite loans.

Baidu also said it uses big data, machine learning and facial recognition technology to help it vet a borrower’s eligibility for its loan. Borrowers make repayment of the loans through its mobile wallet payment application.

“For these internet finance companies, the application of these technologies is only one of the many factors affecting their future loan default rates. More importantly, our focus is on how diversified their loan portfolios are, ” said an analyst at local rating agency that has analysed the company.