Four Cyber Traders Successfully Received 1.2 Million in Loan

Through Internet Credit

On 9th June, a ceremony was held in Hangzhou to celebrate a new round of extensive cooperation between CCB and Alibaba, a world-famous Chinese online B2B marketplace, and the granting of “e-Loans” to the first group of cyber traders.  Together, this group of four cyber traders had received 1.2 million yuan in CCB e-Loans.  Pundits in the banking industry have pointed out that, for an enterprise, obtaining loans on the basis of its trustworthiness has finally become a reality, and that this move may lead to the solving of the borrowing problem of tens of millions of small enterprises in China.

It is understood that the four enterprises involved are all Alibaba TrustPass members and are small enterprises with less than 100 employees each.  Enterprises like them are usually financially so weak that they cannot produce sufficient collateral or guarantee.  Moreover, their financial statements usually do not meet the requirements for normal loan approval.  That is why, previously, most banks are not interested in developing the market of lending to them.

However, among small enterprises, there are also some which are operating honestly and are vigorous in maintaining their creditworthiness.  They may also have a relatively high level of attainment and exhibit good potentials in terms of sales and marketing, innovations, management and profitability.  As such, they are all sound potential loan customers.  In view of their trustworthiness and development potentials, CCB is using their credit rating obtained from online business transactions as a critical basis for extending loans to them.  In addition, it is making use of the credit rating system and credit database of Alibaba to control and attenuate risks and to mitigate cost constraints.

Banking analysts reckon that the current cooperation between the two parties serves to bridge the chasm between banks and small enterprises.  The use of internet credit rating as one of the references for extending loans would free enterprises from relying solely on fixed assets and enterprise guarantee to break away from funding restrictions and allows them to realise further growth.  This move also serves to remind all small enterprises that, in their quest for development, they should pay attention not only to capital expansion but also to their trustworthiness and credit rating.  It is believed that, in the near future, in competition among enterprises, there will be more emphasis on credit performance.  Meanwhile, there will be further optimisation and consolidation of existing resources in banks.

In addition to using credit ratings from cyber trading as a main criterion for extending loans, CCB is also adopting innovative changes in the form of guarantees it can accept.  CCB will soon launch a joint guarantee mechanism to ease the limiting problem of furnishing guarantee by small and medium sized enterprises.  Meanwhile, it is capitalising on this as an opportunity to establish an internet “loan factory”.  This is a specialised channel to process e-Loans which is built on top of the existing loan approval system and is e-banking in its true sense.  That is, the processes of loan application, screening, approval, agreement signing, loan monitoring, loan recovery and the disclosure of process information are all carried out through the Internet.

Correspondingly, Alibaba has developed a serious of standardised risk control processes including risk assessment and eligibility screening before lending, risk monitoring during lending and risk handling after lending.  For example, in the post-lending risk control process, it is stipulated that once a bad debt is apparent, extreme punitive measures will be taken by Alibaba and CCB—by putting the offender on a “cyber-wide wanted list”.  In doing so, the cost for an enterprise in breaching a loan contract is considerably raised and the risk borne by the lending bank is lowered.  This also allows the lowering of threshold of obtaining loans by an enterprise and helps it obtain the funding it needs.

Related Background: Small Enterprises’ Difficulty in Obtaining Financing

Data from the banking industry indicate that corporate clients are the most important customer sector of China’s domestic banks and over 90% of them are small enterprises.  Nevertheless, during the development of these small enterprises, often times they would face the problem of insufficient funding.  Since they are just starting up, they invariably have a low market share and so their loan applications are often turned down by banks out of considerations of the risks involved.

Furthermore, in China, the state as well as society as a whole has yet to develop a comprehensive credit rating system.  As a result, there is no portal for information exchange between banks and enterprises, thus a healthy credit relationship between them is lacking.  And if a small enterprise is not able to produce proof of its creditworthiness or unable to furnish a suitable guarantor, it will not be able to obtain the funding it urgently needs for development.  According to a survey conducted by an authoritative organisation, 46% of enterprises have failed to obtain loans for similar reasons.

Alibaba’s Credit System

At present, Alibaba has already developed a full set of credit rating system and a credit database.  In the database, credit histories of traders for as long as six years can be found.  Most of the existing credit records are reliable because first, credit rating by both parties of a transaction is possible only if the transaction actually takes place.  Second, with advances in internet system technology, almost all suspicious cyber transactions can now be scanned and identified.  Third, dishonesty in transaction is followed up with punitive measures.  These records are not only certified by authoritative organisations, but there is real-time interaction in the Internet.  Thus, the behaviour of an enterprise in its business activities can be revealed through traditional third-party certification, from the feedback and assessment of transaction counterparts and from the records of its activities in Alibaba.  This system therefore provides the current CCB loan extension with credit record backups, resulting in a diminishing of the cost of risks.

In addition, with Alibaba’s introduction of “Alipay”, a secured payment system, into the B2B arena, every cyber transaction carried out by an enterprise will now leave a record of its trustworthiness in the Internet, just like the records of personal credit left by the use of credit cards.  Alibaba has spared no efforts in the certification of cyber traders in order that a non-government credit system can be established, allowing “trustworthiness to be a pass for all those who are trustworthy”.