Chinese government on Tuesday issued an urgent notification to the regional authorities, urging them to suspend the issuance of new permits microfinance and credit institutions. This was announced by Reuters sources who have seen the document.
Small microfinance institution operating primarily through the Internet, steadily expanded in the last year, partly due to weak regulation.
These firms meet the demand for loans from individuals, which denied Chinese banks generally prefer large enterprise clients.
The amounts of such loans range from several hundred yuan to tens of thousands, and borrowers usually do not require to confirm the presence of a stable income or have a good credit history.
Interest rates for such small loans can exceed 35% per year. Some borrowers also take out loans to refinance borrowings from other lenders, which leads to a sharp increase in their debts.
Beijing began to tighten control of online financial services market in 2016, firing instructions and rules for the regulation of financial activities on the Internet after a series of scandals, accusations of fraud and identify security vulnerabilities in computer networks peer-to-peer (P2P).
The volume of unsecured consumer loans in China via online platforms, in 2016 has more than tripled to almost $140 billion, according to a fresh report from the international research Institute Cambridge Centre for Alternative Finance.
Shares of Chinese online lender Qudian included in the Nasdaq index on Tuesday fell by nearly 20%, but then recovered part of the losses, down 3.8% by the closing bell.
Chinese stocks have not yet reacted to the new government measures, ending trading environment in positive territory with the support of the financial sector.