It is said that Chongqing has already approved 35 micro-loan companies. Some are doing well, while others have temporarily ceased operations due to the inability to attract deposits. However, industry insiders predict that licenses will continue to be issued in batches because this poses no risk for the government. As long as these companies are not allowed to accept deposits and use their own funds, there won't be significant social risks. "If licenses keep being issued, underground banks will eventually enter the market, marking a turning point for the industry," an insider said. "Currently, some large state-owned enterprises have obtained licenses but lack experienced personnel, so they are still in the exploratory stage. For example, Beijing requires micro-loan companies to have at least 20% state-owned enterprise shares, and the registered capital may exceed the standard of 50 million yuan."
Can internet domain names be used as collateral to secure loans? The UPG model seems a bit complex. It introduces a "fourth party" that provides counter-guarantees under the existing guarantee model, resolving a series of existing conflicts. During the loan period, if a company faces financial difficulties and cannot repay the bank loan on time, provided certain conditions are met, the fourth party can enter the company through equity acquisition or technical acquisition, bringing cash flow to repay the bank debt. This fourth party could be a VC, or it could be peers or upstream/downstream companies in the same industry. VCs have professional judgment on corporate growth potential, while peers or upstream/downstream companies are more familiar with the insured company's status. With guarantees from both the guarantee company and the "fourth party", the bank's credit risk is significantly reduced. Banks can confidently provide loans, effectively solving the financing difficulties of small and medium-sized enterprises.
In early October, a piece of news caught the attention of the international banking sector: India's SKS Microfinance Bank was about to conduct an IPO in India, with investors including American hedge fund Sandstone Capital. Although India's situation differs greatly from China's, SKS's listing indicates the arrival of a trend. Data shows that among the 615 financial listed companies on NASDAQ, 30% mainly serve small and medium-sized enterprises, including over 160 similar to micro-loan companies and credit guarantee companies. Behind this trend, besides policy and commercial demand, the popularization of new technology is also a driving force. Technology can solve the problem of mass replication, while currently, micro-credit usually has distinct regional characteristics and is greatly influenced by local policies. This situation will eventually change.
Luy Ye noticed a group of domain name investors around him. After interacting with them, Luy realized that the biggest issue in the domain investment market is exiting, lacking a platform with low transaction costs that could expand the market. Thus, Luy decided to fill this missing link in the industry chain. Starting at the end of last year, he gathered some experts in the domain investment circle and domain collectors, each contributing some money, beginning this business that "has one foot in the financial field and the other in the internet field."
For example, some ticketing companies allow corporate clients to settle accounts monthly while requiring immediate payment or even buyouts of some tickets. In such cases, short-term loans might be necessary. How banks understand their operational information becomes a problem. If customers use a third-party payment system, and all ticketing companies adopt this third-party payment system, then banks can lend to numerous ticketing companies. Banks only need the third-party payment system to guarantee for the ticketing companies, as the money and receivables are in the hands of the third-party payment system, which is generally large and regulated by the central bank, thus posing no risk to commercial banks. It would be much harder for ticketing companies alone to obtain loans.
Under this concept, customer groups were positioned. Loan companies targeted two types of clients: one is small vendors, mainly found in various specialized markets. To this end, the company has cooperated with the Yuzhong District People's Government of Chongqing City, the Chongqing Small and Medium Enterprises Financing Service Promotion Center, the Chongqing Small and Medium Enterprises Association, and some large specialized markets. "There are a large number of such markets in Chaotianmen, Zhonghua Road, and Caiyuanba. These are our main markets." The other type targets a specific industry chain, seeking customers along the industry's upstream and downstream. For different segmented customer markets, Hanhua Micro-loan Company has configured three business lines: small enterprises, individual businesses, and non-operating individuals, each equipped with professional staff. In nearly a year since its opening, with a registered capital of 50 million yuan, Hanhua Micro-loan Company has cumulatively issued loans of 230 million yuan, exceeding 600 loans, serving over 500 customers, with an average loan balance of over 300,000 yuan.
The relatively complex model is designed to allow all parties sharing risks to bear losses and gains according to their own risk preferences. UPG Chairman Chen Hangsheng explained, "Under this design, the risks for guarantee companies and banks are extremely low." He gave an example: in the "Gem Flow霞" product, UPG only starts to lose money when the bad debt rate reaches above 5%. The average bad debt rate of banks in Zhejiang Province last year was 5.6%, and the possibility of these cultural industry companies in the portfolio exceeding this bad debt rate is negligible. Even if they do exceed, the losses for UPG and the bank would be minimal.
The model is not complicated. Part of this business resembles a pawnshop. Most customers are investors within the circle. For instance, if you find a domain name with great appreciation potential and want to buy it but lack sufficient funds, you can approach Luy Ye, pledge some good domain names in your possession to him, and then get a sum of money to purchase the promising domain name. After selling it at a high price, you can repay the loan. This can be seen as a transaction of virtual but valuable resources in the vertical professional field of domain trading through financial instruments.
However, there are no such restrictions in places like Wenzhou and Chongqing. Wang Zhentao, founder of Aokang Group, applied for a license, preparing to realize his dream of becoming a grassroots financier. Chongqing's approach, though unconventional to outsiders, is worth learning from by other places and even some city commercial banks. For example, "Here, migrant workers covered in dust, carrying ID cards and marriage certificates, might receive loans; while people driving BMWs and holding property deeds might not."
Lin Feng, General Manager of Chongqing Hanhua Micro-loan Company, summarized the company's philosophy in 16 words: "Design first, targeted development, bulk marketing, credit incentive."
"Design first" mainly involves studying the general market demand for loan products first, finding unique features, designing targeted products, setting basic thresholds and key judgment criteria. Based on this design, targeted development of target markets and customer groups is called "targeted development." On the basis of targeted design, marketing methods should aim to use wholesale approaches as much as possible. "Credit incentive" applies to all loan customers. After timely repayment, if they apply for another loan, they can receive substantial discounts in terms of interest rates and amounts. "The discount ranges between 5% - 10%."
In fact, the combination of the Internet and finance will give birth to countless innovations. For example, widely distributed recharge cards can try providing financing to their vast network of small distributors. For instance, a sales point not only sells recharge cards but also lottery tickets, etc., where some small businesses require working capital, leading to the need for micro-loans.
The core of many models lies in cooperating with institutions that control accounts receivable data. With the popularization of the Internet and the development of commerce, these data can become more transparent, making it easier to connect with banks and carry out large-scale lending business, which will become a major foundation for innovation and change in the financial industry during the digital era.
The Future of Grassroots Finance and Cross-Border Models of Internet Finance
Indeed, in an era where money is not scarce, anything is possible if one can think it up.
Micro-loans await a turning point. Zhejiang Sinolink Guarantee Company is the largest guarantee company in Hangzhou in terms of registered capital. In March 2008, it received investment from Silicon Valley Bank and venture capital firm NEA in the United States. Originally part of the Metropolis Real Estate Group, the guarantee company transformed from a registered capital of 20 million yuan to the current Zhejiang Sinolink Guarantee Co., Ltd. (referred to as "UPG") with a registered capital of 185 million yuan.
In September last year, UPG collaborated with the Hangzhou Xihu District Government to launch the "Xihu District Small Enterprise Aggregate Trust Debt Fund," with an initial public offering size of 50 million yuan. The 50 million yuan ultimately flowed into 20 small and medium-sized enterprises in Xihu District, mainly focusing on high-tech and new agriculture. Six months later, UPG introduced the "Road衢 Model," incorporating government-guided funds, bank wealth management products, and various social funds into the enterprise financing system, designing structured products of different risk levels based on the risk and return demands of different entities.
Currently, UPG's model still introduces VCs willing to take higher risks as the fourth party. As a demonstration, this is particularly innovative, but questions remain regarding how large a scope of enterprises it can serve, as companies that meet VC standards are still a minority at the top of the pyramid. As a guarantee company, relying on innovative models to increase its value and profit margin to a certain extent is commendable.
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