Enhanced ties key to generating 'win-win' results for both sides

Microlending companies yearn for more cooperation with banks in jointly offering loans to small businesses and rural households or in assisting banks in microfinance, said Liu Dongwen, the CEO of CD Finance, a rural microfinance institution headquartered in Beijing.

"We look forward to further expanding our cooperation with banks. This will help us overcome our financing difficulties and relieve us from restrictions on leverage for microlending companies," Liu said. "Such cooperation will create win-win situations for banks, microfinance institutions and rural households."

As the organizational framework, corporate culture, products and risk control measures of commercial banks are not quite suitable for micro and small enterprises (MSEs) and agricultural-related business clients, demanding large banks to serve these clients is like "asking elephants to perform ballet", he said.

Based on international experience, it is more effective to provide funds to MSEs and small rural households by establishing microfinance institutions that specialize in serving them. Those institutions offer them special products and design procedures based specifically on their needs.

"Compared with banks, small nonbank financial service providers usually have better understanding of the risks associated with micro and small market entities and are more aware of their real needs," said Bei Duoguang, president of the Chinese Academy of Financial Inclusion at Renmin University of China.

"We hope that a sound ecosystem for financial inclusion will be created so that banks could support nonbank institutions, through which funds will flow to MSEs smoothly, just like blood flowing through the capillaries."

Financing is the biggest problem restricting the development of microlending companies, which are not allowed to absorb public deposits. They have to seek for funds through cooperation with financial institutions by obtaining wholesale loans from banks, issuing asset-backed securities, or assisting banks in microfinance.

By the end of April, the outstanding loan balance of CD Finance reached 11.09 billion yuan ($1.55 billion). Its balance of asset-backed securities was 4.36 billion yuan, accounting for 39.3 percent of the total. The balance of loans associated with the company's assistance to banks in microlending was 4.59 billion yuan, or 41.4 percent of the total.

"We hope that regulators and policymakers will give some policy space to high-quality microlending companies in terms of financing," Liu said. "We also hope that government agencies will have correct views on the role of microlending companies in the financial system."

China's top banking and insurance regulator issued a consultation draft of rules on commercial banks' online lending business on May 9.