China's economy

China's underground lenders play an important role

Private lenders in China give cash-starved SMEs much-needed financial support that state-owned banks can't possibly provide.
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Informal money lenders are often the only people willing to lend to China's SMEs (AFP)
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<div style="text-align: left;"> Informal money lenders are often the only people willing to lend to China's SMEs (AFP) </div>

Private lending in China gives cash-starved small and medium-size enterprises SMEs much-needed financial support that state-owned banks can’t possibly provide, according to Royal Bank of Scotland.

“Underground market lending serves a very meaningful purpose for SMEs,” said Wendy Liu, head of China research at RBS. “Although the interest rates at private lenders can be up to four times higher than the benchmark rate, the administrative costs are only a fraction of those for official banks. They don’t need to take people out dining or send gifts a common practice when applying for loans from state lenders, so they save other costs and the SMEs...

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