Helping smaller firms can work out

Although no major breakthrough has been seen in China's financial system, innovations at the grass-roots level are noticeable.

Shi Jianchang, a Sichuan businessman, has many titles. He is chairman of Heli Guarantee, a loan guarantee company, chairman of Heli Microcredit, a small loan company, chairman of Best Kingdom (Tianjin) Financial Leasing Co and vice-president of the Chengdu Chamber of Commerce under the official Chengdu Federation of Industry and Commerce.

He has made good use of this portfolio of titles to manage his prosperity in what is for many a grim environment.

The loan guarantee business, he says, is not an admirable undertaking. It carries the risk of providing guarantees to numerous small and micro firms but only reaps 2 to 3 percent commission fees out of each deal.

The low profit has forced some loan guarantee companies to take on some risky business, for example offering loans online, which offer a much higher interest rate. These were the causes of the default crisis that hit three major loan guarantee companies last year and hurt the reputation of the industry.


"The key problem of the loan guarantee industry is the business model. There are basically two models. One is building massive franchises across the country. The other is cultivating a local market deeply," said Shi.

Shi, who was unable to compete in scale, chose to operate in the Chengdu market, developing various financing businesses, including loan guarantees, offering small loans and financial leasing to control his risks and increase profits.

"For small and quickly needed loan requirements, we offer small loans. For companies that need a large amount of money to upgrade their facilities, we offer them financial leasing. In general, we provide specific services to a company at each phase of their growth cycle," Shi said.

Shi also uses the Chengdu Federation of Industry and Commerce as a convenient platform to find potential clients because there are thousands of local enterprises signed up to it.

"One of the advantages of financing through the federation is that when a businessman needs a loan from it, he finds it very difficult to default because he has to live in this community," said Shi.

Another advantage of Shi's companies is cooperation with China Development Bank, a policy bank issuing favorable loans to industries. Together with the federation, Shi built a financing platform through which the bank's loans could be channeled to SMEs in a wholesale form.

"The interest rate of ordinary banks is at least 15 to 16 percent. But our program with China Development Bank offers loan with an interest rate of about 11 percent," Shi said.

"For SMEs, a percentage point discount would be attractive, let alone a discount of 4 to 5 percentage points," Shi added.

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