The economy of China has seen a dramatic slowdown in recent years, and as government eases its policies in order to provide loans and credit to its citizens to generate growth, it has resulted in bad loans making its microcredit banks, and other retail financial institutions go insolvent.
Although the deputy director general at the Guangdong Financial Services Office, Kuang Renshaw said that the relaxation in capital requirements might have a positive effect on the economy, its effects are hard to see in the southern Guangdong province of China. Director of China Association of Microfinance, Du Xiaoshan in a recent meeting said there are around 378 microcredit lenders operating in Guangdong, excluding the Shenzhen metropolitan area. Around 100 are in “normal operations,” while less than 60 may demonstrate any business growth.
In comparison to the large–scale state–owned microcredit lenders who have bigger balance sheets, sophisticated risk management platforms, and a big client base to generate profits from, small microcredit lenders fight for clients and provide ease in requirements to lure customers. Many do not return their loans due to severe losses they face because of shrinking profit margins and higher operating costs. As competition increases, the number of non-performing loans rises. President of the Guangdong Microcredit Association, Shao Jianming sad, “When the real economy is bad, the operating environment deteriorates. It is natural that loans cannot be collected.” 2.8 percent of loans were termed as nonperforming in 201, up from 0.63 percent in 2014.