HANGZHOU -- A building materials dealer borrowed 260,000 yuan ($41,335) from a lender at a monthly interest rate of 1.2 percent, much lower than the 4 percent in the past.

This was done via the Wenzhou Private Lending Registration Service Center in Zhejiang province, an institute founded in April 2012 to regulate the private financing market and promote transparency.

Xu Zhiqian, the center's general manager said, "The transparency of the interest rates in the center lowered the monthly rates which stood at 3 to 4 percent in the underground market to 1.2 to 1.3 percent."

The center has eight companies which work as "go-betweens" for those in need of borrowing and lending, in addition to other services such as legal support.

The State Council, China's cabinet, approved the establishment of a pilot financial reform zone in Wenzhou in March to regulate private financing activities after a crisis broke out in the city in 2011.

In Wenzhou, a large number of small and medium-sized enterprises used to resort to underground financing as state-owned banks failed to meet their needs.

However, the monthly interest rates, as high as five percent, made some companies unable to return the loans and they went bankrupt due to poor management. Other companies were affected as many of them were loans warrantors for each other.

Setting up the lending registration center was one of the steps to solve the financing problems for SMEs.

By Monday, Wenzhou had set up four centers with loans registered for lending hitting 1.4 billion yuan, of which 420 million yuan have found borrowers.

In addition, four private capital management companies have provided financial support of 423 million yuan for more than 100 projects since the reforms began.

"The centers have played a positive role in restoring people's confidence, as the crisis in 2011 made some people unwilling to lend money. The centers serve as new channels for those who want to borrow from others," said Xu.

However, many businessmen were unsatisfied with the slow progress of Wenzhou's financial reforms.

Yang Jiaxing, a 67-year-old businessman in Wenzhou, had planned to establish a private bank with his friends as he thought he would be allowed to do so due to the financial reforms.

Yet his application was turned down, because under the regulations, private enterprises can not apply in setting up banking institutions.

"No breakthroughs have been made in the establishment of private banks and the drafting of the regulation for a private lending market," said Zhou Dewen, chairman of the Wenzhou SME Development Association.

Zhou said the private lending registration center was a remarkable reform step, yet the volume of deals was too small compared with the unofficial lending market with an estimated value of 120 billion yuan in Wenzhou.

"You have got the 'the imperial sword' from the country with the approval of a pilot financial reform zone. The key is how you use it," said Zhou.

In fact, even the private lending registration centers faced problems. For example, lenders would worry about their income tax because their capital is put under official monitoring if they choose to lend via the centers.

"On the whole, courage is lacking in financial reforms with slow pace and less significant progress," said Chen Derong, secretary of the Wenzhou municipal committee of the Communist Party of China in December.

Chen vowed to speed up financial reforms and have results on the first anniversary of the founding of the zone and wants big achievements by October.

"In 2013, Wenzhou will help and encourage private enterprises to join the establishment of seven kinds of local financing institutions, such as insurance, stocks and banking companies," said a senior official with the leadership office of Wenzhou Financial Reform Zone.

"We should try to make full use of the flexibility of private funds and the advantage of risk management of professional banks," said the official, who declined to be identified.

The regulation on the private lending market in Wenzhou is expected to come out at the end of the year. Wenzhou will set up more private lending registration centers and private capital management companies this year, the official told Xinhua.

Wenzhou was China's first pilot financial reform zone, followed by similar zones in the Pearl River Delta in Guangdong Province and Quanzhou in Fujian Province.

"Any reform needs time. Under the current monitoring framework of the strictly controlled financing sector, it is imaginable that local governments face great difficulties in pushing forward regional financial reforms," said Chen Jingwei, a financing expert with the Chinese Academy of Social Sciences.

"High-level financing personnel should be introduced and breakthroughs gradually made to make financing services focus on the upgrading of industries," he said.