It allowed banks to cooperate with financial and non-financial institutions, including microlending companies, in many areas such as customer acquisition, risk sharing, information technology and debt collection during the process of online lending.

"The regulator clearly defined how commercial banks will conduct online lending business and explicitly stated that microlending companies can help banks issue loans or work together with banks to provide funds to borrowers. Therefore, banks know what to expect and how to handle such business," Liu said.

"In the past, however, there were no unified rules to standardize the online lending business of commercial banks, so banks had to judge for themselves."

By seeking funds from banks and other financial institutions, microlending companies will not only ensure compliance but also reduce financing costs.

CD Finance has been striving to lower financing costs, operation costs and control loan losses through comprehensive risk management.

"We are the McDonald's of the rural finance sector," Liu said.

The company established two back offices in Beijing and Changsha, Hunan province, to support its 356 county-level branches across China in various aspects including technology, financing, branding, purchasing and human resources.

Targeting middle and low-income people in rural areas, its branches mainly offer loan products that require no collateral by assessing the creditworthiness of borrowers or their guarantors.

As the loan products and procedures are simplified and standardized, its locally recruited loan officers are capable of issuing loans after receiving short-term training.

With the help of Ant Financial Services Group which became its stakeholder in 2016, the company has built up a big data-based risk management team and adopted facial recognition, identity verification and bank card authentication technologies. This significantly improved its service capacity, reduced unnecessary costs and served to enhance the customer experience.

Its stakeholders include the International Finance Corporation and Sequoia Capital. TPG, a global alternative asset firm, also invested in the company through a social impact investing fund.

By the end of April, its loans which are at least 30 days past due accounted for 2.43 percent of its outstanding loan balance, up from 1.58 percent at the end of last year because of the novel coronavirus outbreak. The number of clients reached 402,874. The average loan balance per borrower was 27,566 yuan.