China's Crackdown In Micro-Loans

Issue 69

China’s tech giants have been expanding what was once just a simple payment platform into a complex system that is now offering several financial services that range from personal loans to insurance policies, but China’s central bank has caught wind of this operation and is now making a push to stop the tech giants from offering financial services outside of the central bank’s umbrella.

Ant Group Co., controlled by billionaire Jack Ma, has been one of the leading tech giants to offer financial services to citizens across China, with other organizations such as Tencent Holdings Ltd. and Didi Chuxing Technology Co. following Ant's lead.  There was a total of thirteen technology firms that partook in offering financial services behind the back of the central bank.  Regulators have stopped all operations regarding financial services provided by these companies until they recognize themselves as a financial institution and abide by the policies set by the central bank and other regulatory institutions.

These companies were quite successful with their financial service offerings as the Alipay mobile app, owned by Ant, was originally a simple payment platform but soon began to offer micro-loans to its users and resulted in nearly 40% of total sales in the first half of 2020.  Alipay will, however, remove financial services from the app and return to being a payment platform.

Ant is discussing the possibility of taking a once dormant app known as Ant Fortune and implementing many of the same financial services while complying with central bank regulations. The inability for Ant and other organizations to offer financial services may hurt the small business sector as millions of individuals who owned small businesses across China have relied on small loans offered by Ant, as obtaining loans through China’s banks has proven to be quite difficult.

The crackdown on Ant’s financial services has greatly affected growth prospects.  As a result, investors such as Fidelity have begun to expect a loss in investment and are likely to pull out of their investment until the company is expected to recover.

Source: Wall Street Journal