China Aims To Curb SMBs’ Use Of Pawnshop Loans

Chinese regulators continue to crack down on shadow and alternative lending: Their latest target is the pawnshop financing space, which is often used by small businesses for quick capital.

Reports in Bloomberg on Tuesday (March 12) said Chinese pawnshops are quickly emerging as a major shadow lender for small firms, providing $43 billion worth of financing in 2017. Much of that capital was lent to small firms, reports said, while the number of pawnshops in the country has doubled in less than a decade to more than 8,500.

Average loan sizes now exceed $26,000, while in the U.S., the average size of a pawn shop loan is about $100, according to the publication. The industry has struggled to compete with online alternative lenders, with more than one-third of the sector seeing losses in the first two months of 2018, while overdue loans rose 13 percent.

In addition to accepting high-value goods like watches and jewelry as collateral, these pawnshops have also begun to accept stocks and accounts receivable, reports said.

An unnamed source told Bloomberg the rapid growth of pawnshop small business lending has caught the attention of Chinese policymakers, which are in the midst of drafting new rules to enhance oversight of the space. The inclusive financing division of the China Banking and Insurance Regulatory Commission (CBIRC) is said to be drafting the new regulations. The body took over regulation of pawnshop lenders from the Ministry of Commerce last year, reports said, though the CBIRC would reportedly shift day-to-day oversight of individual pawnshops to local governments.

According to reports, the initiative would see authorities creep further into “one of the last untouched corners of China’s $9 trillion shadow banking industry.”

It also signals that regulators are continuing their crackdown on shadow banking despite recent “deleveraging measures,” as the report explained, which aim to jump-start economic growth.

The CBIRC did not respond to Bloomberg’s request for comment.