Loan relief

Zhao Liuchai, manager of Meiba Jewelry Commercial Firm in Yiwu, East China's Zhejiang Province and also a vendor on Alibaba, China's leading e-commerce company, considers herself one of the lucky few to have secured loans from Alibaba.

The loan has helped her ease the capital strains that have plagued her business due to sluggish demand amid the global economic slowdown.

"It was all simple. I had been operating on the platform for seven years by last year, and I received a call from Alibaba telling me that I was entitled to apply for a loan from them," she said.

Zhao filled in a form and had an online interview. Seven days later she received an initial loan of 40,000 yuan without any requirement for collateral or guarantees. In June, she applied for another loan worth 50,000 yuan and got it immediately.

"The loan is not so big, but it is enough for me to restock my inventories and get my business going. I feel lucky to get the loans so easily," she said.

Now more people will be able to get loans after Alibaba recently decided to open its loan service (Aliloans) to members operating on the company's business-to-business (B2B) platform in Zhejiang and Jiangsu provinces and Shanghai.

In a notice on its website, Alibaba said any of its members that have registered in Zhejiang Province (except Wenzhou), Jiangsu Province and Shanghai are entitled to apply for Aliloans, so long as they have operated for two years with a good record; they also need to have had sales of at least 2 million yuan in the last 12 months.　

The loans available include revolving loans and fixed loans. With the former, applicants have access to a loan that can be borrowed and paid back any time within a period of 24 hours, and no interest is incurred if applicants do not take the loan. A fixed loan is in the form of a lump sum, with a daily interest rate of around 0.05 percent.　

The loan limits are between 50,000 yuan and 1 million yuan and the maximum lending term is 12 months.

Analysts said the move would boost the number of micro-loan applicants dramatically and would also challenge banks and micro-credit companies to make credit more accessible for clients.

Competitive advantages

As China's largest e-commerce company, Alibaba Group launched its financial business in 2010 when it set up the Zhejiang Alibaba Small Loan Company, and Chongqing Alibaba Small Loan Company in 2011.

"Aliloans were previously only available to our paid members and now we extended the loans to all members on our B2B platform in Zhejiang, Jiangsu provinces and Shanghai," said a senior manager at Alibaba Financial who did not wish to be named.

"The loans we provide are usually for short-term use and to help our members to make a quick turnover, so the loans are not normally more than 500,000 yuan," he said.

"The loans are usually repaid within two or three months, and sometimes within a few days. We make our loan application interface automatically accessible to all sellers across our platforms who meet our requirements," he said.

Alibaba had a total of 79.8 million registered users by the end of March.　

"It is difficult for micro- and small-sized companies to get loans from banks, as they usually favor State-owned enterprises and large companies, and the interest rate for private loans is usually very high," said Zhou Dewen, director of the Wenzhou Council for Promotion of Small and Medium-sized Enterprises.

"To extend Aliloans to Zhejiang, Jiangsu and Shanghai, where micro- and small-sized firms are thriving, is a test ground for Alibaba to extend its loans to all members on its B2B platform across the country in the future," he said.

Small enterprises who apply for bank loans must meet strict requirements. They must have annual sales of at least 10 million yuan just to be eligible for a bank loan. Even if small enterprises meet the requirements, they must also provide guarantees, China Business Journal reported Saturday.

"We took the bold move to extend Aliloans to more sellers across our platform because we have developed micro-credit rating technologies based on our member database to support our loan business," the manager at Alibaba said.

With a huge e-commerce database, Alibaba has access to relevant information about its members including their transactions, orders, inventories, clients and credibility.

According to the manager, Alibaba Financial has around 300 employees, the majority of whom are engaged in micro-credit rating technologies.

"Alibaba has obvious advantages over commercial banks and other micro-credit companies due to its strong evaluation capabilities from its e-commerce database," said Lu Zhenwang, an independent e-commerce analyst.　

In the first six months of this year, Alibaba extended 1.7 million loans worth a total of 13 billion yuan to its members, with 10,000 loans made daily and each valued at an average of 7,000 yuan.　

Limitations

Despite the good prospects for Aliloans, analysts said the room for Alibaba's financial business to develop further will be limited by its status as a small loan company.

"Like any other micro-credit firms, Alibaba's small loan companies cannot accept deposits so their ability to make loans will be restricted by their capital," said Zhao Xijun, a finance professor at Renmin University of China.

The information that Alibaba has on its borrowers is also incomplete, Zhao warned. "It is still going to face the risk of bad loans," he noted.　

Furthermore, "by relying on small short-term loans, it will be competitive only in a small niche of the market," said Zhao.

"Even if Aliloans is offered to all the company's members nationwide, it cannot be extended beyond its members. So the number of micro- and small enterprises benefiting from its loans will be limited," said Lu, the independent analyst.

"All these limitations would be removed if Alibaba were to obtain a bank license and become an online integrated banking platform," he said.

According to Lu, Alibaba applied for a bank license several years ago but was rejected by the People's Bank of China, the country's central bank.

"Alibaba has two options. It can either work with banks with the latter agreeing to share interest income with Alibaba or it can apply for a bank license," said Bai Chengyu, secretary-general of the China Association of Microfinance.　

"With the country's deepening financial reforms, more areas are open to private capital. It is not impossible that Alibaba might get a bank license. And in future, other e-commerce companies might copy its business model," he said.