Ant Financial, the financial arm of Alibaba, has barred consumer loans with an annual interest rate above 24% on its Alipay platform. This latest step by Alibaba’s Ant Financial is another sign of how stricter regulations are chaining the once-booming Chinese internet lending industry.

By Charliepug (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Why did Alibaba’s Ant Financial adopt new rules?

Ant Financial stated that it has increased monitoring of the financial service providers on Alipay and its credit platform, Sesame Credit, and found some inappropriate collection methods and interest rates above legal limits, according to Reuters. Further, Alibaba’s Ant Financial stated that it would withdraw cooperation with some cash loan providers. Sesame Credit is a proprietary credit scoring system, which gives Alipay e-wallet users a credit score.

“Our inspections discovered that products recommended by a few merchants on Lifestyle have problems such as interest rates that exceed the legal limit and inappropriate collection methods,” Ant Financial said in a statement, according to Financial Times.

Ant Financial’s latest move comes after the People’s Bank of China and China Banking regulatory commission decided to tighten the regulations and rectification of online microloans. The government has already furnished the notice asking provincial authorities to withdraw the regulatory approval for new internet micro-loan companies and stop companies that do not meet the criteria from offering loans.

Companies offering small loans over the internet have been mushrooming over the past year in China due to weak regulations. Online loans have become quite a trend among people in China, who are looking for quick finances. The formalities that these lenders ask is less complicated compared to those required by banks in China. Further, these lenders require less paperwork and rely on the personal credit scores generated through Alipay.

Print Friendly, PDF & Email