China microlenders' outstanding loans up 52%

Chinese microcredit companies reported outstanding loans of around 600 billion yuan, or over 96 million U.S. dollars, by the end of 2012. That's up by over 50 percent compared to the year before. Thanks to surging urbanization and limited access to financing for small businesses, these grassroots lenders are thriving in China.

Microfinance companies have mushroomed in China in recent years. When first approved in 2005, there were less than 10 such microlenders in the country. That number has jumped to around 6,000. According to the China Microfinance Institution Association, these companies reported some 600 billion yuan, or 96.3 billion U.S. dollars, in outstanding loans by the end of November last year. New lending last year was equivalent to the amount lend by a medium-sized bank.

Grassroots lenders have become increasingly critical in China as a key channel for helping low-income groups enter the financial market.

Zhang Youxiong, chief operating officer of Hanhua Micro-Credit, said, "We are targeting migrant workers and small business owners. Those people cannot be benefit from other financial institutions. Now, we have more than 600 clients."

Still, along with growth comes problems. China's small lenders face government regulations, including caps on interest rates and relatively stringent credit restrictions. These small lenders are hoping to increase their lending ratio.

A small business owner said, "The lending rate of microcredit firms is almost equivalent to that of banks and even may be lower than most major banks."

Analysts say the prospects for microlenders are promising, thanks to increasing urbanization and limited loan access for small businesses.