(Photo/VCG)

Dec. 4 (NBD) -- China's financial regulators announced new rules to clean up the micro lending business and restrain all kinds of illegal activities in the fast growing micro lending industry.

The new regulatory notice issued by China's two leading offices specified six key principles for micro lending business operations.

According to the notice, any organization or individual is prohibited to conduct micro lending business without legal micro lending licenses. The regulators will also suspend new approvals of online micro lenders as well as the cross-region micro lending businesses and the lenders that have been given permission for its establishment will be banned from operating temporarily. 

Xu Zewei, founder of the online finance platform 91JinRong.com, pointed out that in the future, only lenders with legal licenses will be allowed to offer micro lending services and the qualified micro lending platforms are expected to see an appreciation in their value.

Characterized by no reqirements for loan purposes, specific customer groups and mortgages, the loosely regulated micro lending business witnesses a rapid growth in recent years, and it plays a part in meeting people's normal demands of consumer credit services. 

However, the problems such as over lending and borrowing, repeated credit extension, violent debt collection, usurious interest rates and invasion of privacy have emerged, leading to great financial and social risks.

Under such circumstances, the new notice stated that the loans for the borrowers who have no source of income are prohibited. 

In addition, a single loan's total debt including the principal and interest should be capped clearly, and the loan extension should be offered no more than two times. 

As for the cost, the notice says that the comprehensive borrowing cost should comply with the regulation on the interest rate of private lending as stipulated by the Supreme People's Court and be presented in the form of converted annual rates. The interests, commission fees, management fees and guarantees are not allowed to be deducted from the principal and the extremely high overdue interests, late payment charges as well as penalty interests are forbidden. 

Such notice requires the micro lending platforms to further hold exhaustive data for consumers, said Xu, adding that there will be no micro lenders who tend to use high profits to cover the loss from high risks, and the platforms will focus on the control of risks in the future.

Moreover, the regulation of the micro lending services jointly provided by the financial institutions of the banking industry and other third parties are strengthened.

The new rules will help to prevent the financial risks and ensure the financial security in China, Xu noted.

Email: zhanglingxiao@nbd.com.cn