The government of Guangyuan City, southwest China's Sichuan Province, announced on December 17 to solicit investors for a piloted microlending company.

This is the new efforts of the People's Bank of China, the country's central bank, to quench the small and medium-sized enterprises' thirsty for capital, and a major measure to regulate the underground lending activities.

In mid 2005, the central bank decided to conduct pilot program of microlending firms in Shaanxi, Sichuan, Guizhou and Shanxi provinces. This May, Pingyao County of Shanxi Province and Jiangkou County of Guizhou Province initiated bid invitations. Rishenglong and Jinyuantai went into operation in Pingyao on December 27. They symbolized the official establishment of first batch of private banking companies since the founding of the People's Republic of China in 1949.

The business scheme of Guangyuan microlending firm has been approved by the central bank's local branch and the Sichuan provincial government. According to the pilot scheme, the deadline for the bid registration was as of December 30; its registered capital shall be no less than 5 million yuan (US$0.62 million) and there is no ceiling limitation; it can have a maximum of five shareholders; money depositing business is forbidden and the pilot term is usually two to three years.

"Currently, a dozen bidders have registered for the bidding, mainly from Shanghai Municipality, and Zhejiang and Sichuan provinces," said an official from Fiscal Office of the Guangyuan municipal government, the bidding organizer.

According to a Li-surnamed director of the central bank's Guangyuan branch, the pilot scheme will stick to two principles: it only deals with lending businesses rather than money depositing; it can only operate in the Shizhong District of Guangyuan City, serving local farmers, individually run businesses and small enterprises.

Other requirements include: each loan amount is no more than 2 percent of the registered capital; loan period is less than one year; lending rate can be negotiated between the lending firm and borrowers, but it should not exceed the 4 times of central bank's current lending rate.

The firm's profitability prospect wins many investors' favor despite that local government gives no preferential policies.

The current one-year benchmark lending rate is 5.14 percent, so the maximum rate of Guangyuan lending firm could be 20.56 percent, much higher than the average 10 percent rate of domestic rural credit cooperatives.

The Guangyuan microlending firm is currently categorized as a non-banking institution, so it will be supervised by the central bank. Though this blurry identity might cause some unseen problems, both the central bank and banking regulatory commission prefer to have the lending firms set up first, and put forward a unified management rule later on.

The new firm was previously scheduled to complete business registration procedures before January 25, 2006, but a local official said the date had been adjusted.

(China.org.cn by Tang Fuchun December 31, 2005)