CRI听力:Experts Call for Further Reform after Legalizing Private Lending

Ms. Cai is the owner of a training school. As the business expands, she needs to borrow 5 million yuan from the bank.

"I have been to five banks, but none of them agreed to offer me the loan. I brought my property ownership certificate and assessment report to one of the banks. The bank told me that I had to get guarantees from the other four major banks. Plus, although my assessment report said my property value is over 8 million yuan, the bank told me I could only borrow 2 million. Other banks simply rejected my loan application."

Running out of luck at the banks, Ms. Cai turned to private lenders and got 5 million yuan within a day.

It is not unusual for small and medium-sized companies to end up being rejected by banks when applying for loans. According to official statistics provided by Anhui Province, by September 2013, bank loans granted to small and medium-sized companies accounted for 30 percent of all loans. However, these companies contributed to over 60 percent of the Province's GDP.

Wang Chaofu works at a local rural credit cooperative and explains why big banks refuse to provide loans to SMEs.

"Firstly, most of the firms are operated by families which lack a systematic managing scheme. Second, the finance management of some firms fails to meet relevant regulations. And also, the firms are small which means they are vulnerable to changes in the market."

The imbalance between the demand for loans and the limited supply provided by major banks has created a huge opportunity for private lenders.

The Survey and Research Center for China Household Finance has conducted a survey of over 28,000 families. The result shows that about half of families in China's western regions have participated in private lending and 38 percent in eastern China.

Therefore, Zhou Maoqing, a researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences says reform is needed if official financial institutions and banks are to meet demand from the private sector.

"Fundamentally, if we want to make it easier for the SMEs to get loans, we need to change the current banking system which is dominated by state owned major banks, and to set up small and medium-sized banks. In this way, major banks can continue their services to big firms while other banks such as community banks can offer loans to SMEs."

But, Zhou also suggests that if the Wenzhou regulations work, they can be adopted in other cities, and possibly lead to national legislation.

For CRI, I'm Lucy Du.