Alibaba, banks launch online service to make loans to SMEs

Alibaba Group Holding joined seven of China's major banks in launching an upgraded online financial product to offer low-interest loans to small and medium-sized trade companies, a move the largest e-commerce company in China said would help ease funding costs for these companies.

Alibaba announced Tuesday in Shanghai the launch of an online financial service providing fundraising for small companies.

The banks in the partnership, including Bank of China, China Merchants Bank and China Construction Bank, will decide on their own whether to make the loans, solely based on the companies' business performance data provided by Alibaba.

If a company completes three deals in six months with a trade volume of over $100,000, it can qualify for a loan of up to 10 million yuan ($1.6 million), according to Alibaba's press release. The loan's size will be pegged to the company's performance.

For companies registered on Alibaba's trade platform, onetouch.cn, $1.00 in trade volume guarantees 1 yuan in loan, while other companies can obtain 0.8 yuan for the same amount of trade volume, read the press release.

The annual interest rate is 12 percent, said Alibaba. By contrast, the one-year benchmark lending rate is set at 6.15 percent by the central bank.

Labeling Alibaba a data provider instead of an Internet or e-commerce company, Wu Minzhi, president of B2B (business-to-business) section for Alibaba, said that the core value of B2B, business-to-customer or even customer-to-customer is the data accumulated through a company's business history.

"Only on the basis of this business data could it be possible for us to better solve the difficulty of funding for small and medium-sized companies, with the cooperation with the banks," said Wu in the news conference.

"More export-related data means more funding support. Big data makes the flow of funding more compatible with a company's real demand," said Tang Zhihong, deputy head of China Merchants Bank.

The big data advocated by Internet companies has reshuffled the financial industry, analysts believe.

"If Alibaba is just a data provider and the banks hold the decision-making right, it would bring about a reform of the risk assessment process," Yi Huanhuan, an analyst of Hongyuan Securities, told the Global Times.

Yi noted that these types of partnership will also help banks meet the criteria for the lower banking reserve requirement, as this policy benefit is only available to banks that are able to offer a required amount of funding to small and medium-sized companies.

By the end of 2013, there were about 11.7 million micro and small-sized enterprises in China, 76.6 percent of the number of Chinese enterprises, according to a report issued by China's State Administration for Industry and Commerce in March.