newmediadev2009




Alibaba Micro-finance for Small and Medium Sized Companies

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(A piece from China Central Television on how Alibaba served as a rating agency using its company data base to help three SMEs get loans. In Zhejiang province, over 2000 SMEs have successfully got loan, averaging 2 million yuan (300,000 USD) through the project. Other forms of micro-financing for SMEs are also expanding.)

China's leading E-commerce company Alibaba started its micro-finance business in September 2007. The program has helped thousands of Chinese small and medium sized enterprises (SME) get loans from state banks, which have always favored big state owned enterprises (SOE). Chinese SMEs, which creates more than 70% of China's GDP and hires than 80% of the work force (many of which are rural migrant workers), have long suffered from hard credit access. It's not that banks don't want to lend. The absense of a credibility rating system in China has made it hard for banks to tell "good" companies from bad ones, and forces to favor customer they know better - SOEs. Alibaba, which has a huge data base that records the operation status of its small company customers, is acting as a rating medium that serves the needs of both companies and banks.

The model has so far performed well - out of the total 420 million yuan (60 million) outstanding loans channelled from this program, only 1.04% is rated as non-performing loan, which is much lower than the usual rate.

The interest rate that SMEs pay for the Alibaba loan is also remarkably low (between 5.31-11%) compared with the underground loan that could see lending rate spiking to as high as 120%.

So far the program is limited to China's richer costal areas like Zhejiang, Jiangsu and Guangdong (marked on the map), but it also has a radius effect that could benefit those from the rural areas, as companies getting loans will be able to hire more staff, and raise the income level of the peripheral regions.