Ratings on the way for micro-lenders

China will soon introduce its first credit rating system for micro-lenders, a move which will ultimately facilitate further lending to small-and medium-sized enterprises (SMEs), Zhang Rui, the secretary general of the China Microfinance Institution Association (CMIA), said at an industry conference Saturday.

The system, which could be unveiled as early as July, will evaluate credit ratings of micro-financing institutions in terms of their impact on the local economy, their risk management abilities and their earnings, Zhang explained.

Amid broader efforts to support the growth of small businesses in the early 1990s, Chinese financial regulators approved the establishment of micro-credit firms which could offer SMEs loans between 1,000 yuan ($161) and 10 million yuan.

More recently however, with credit from commercial lenders going mostly to large State-owned companies and new initial public offerings indefinitely on hold, SMEs are still finding it a challenge to secure financing from investors or traditional lending institutions, Wei Longbao, director of the Institute on SME Development at Zhejiang University, told the Global Times.

"These conditions have led to an explosion in micro-lending as small institutions come forward to satisfy SMEs' demands for cash," Wei said.

By the end of last year, China was home to 6,080 micro-credit institutions which together held a total balance of 592.1 billion yuan in outstanding loans, up 41.99 percent and 51.24 percent year-on-year respectively, according to data from the People's Bank of China, the country's central bank.

But unlike traditional banks though, micro-lenders are barred from holding deposits, which has intensified their own capital pressures and cut into their lending operations, Nie Riming, a research fellow at the Shanghai Institute of Finance and Law, told the Global Times. "They can only turn to their shareholders and larger commercial banks when it comes to drumming up financing," Nie explained.

The upcoming credit valuation system is intended to offer financial authorities and commercial banks a reliable reference on the credit risks posed by micro-lenders, who can in turn strengthen their ratings to bring in more funding for SME loans, Zhang went on to say over the weekend.