Alibaba Establishes China's First E-Commerce Microcredit Company in Hangzhou

On June 8, 2010, Alibaba Group, in partnership with Fosun Group, Intime Department Store Group, and Wanxiang Group, established China’s first e-commerce Microcredit Company (MCC). This newly established MCC, called Zhejiang Alibaba Microcredit Company (ZAMCC) and based in Hangzhou, Zhejiang province, will provide microcredit loans of RMB 500,000 or less to small- and medium-sized enterprises (SMEs). The aim is to support SMEs with temporary funding, as they are often denied in traditional banking loans.

Clients will be chosen based on credit history, trade movements, complaints and dispute information made available through the SME e-commerce websites Alibaba.com, Taobao.com and Alipay.com. Data will be synthesized and subsequently used to evaluate clients’ loan application; only existing clients with the above data available will be eligible for this program. This will be the first-time in which e-commerce is incorporated into microcredit in China. It is believed that this will lead to greater transparency and improved information symmetry in an area which historically has fared weaker in both respects. According to ZAMCC’s license, all operations are currently limited within the city of Hangzhou; but Alibaba is hoping to expand operations nation-wide.

Prior to the official opening ceremony, ZAMCC ran a six-week trial in which 9,038 loans were distributed amounting to RMB 21.45 million. Thus far, according to ZAMCC, the pilot shows a zero-percent loan default rate, good risk control and institutional operational stability. The loan period is generally 30-days and is typically re-paid automatically after buyers confirm receiving the products. Repayment 30-days after expiration through a lump sum payment will not be permitted. The first batch of loan clients will be chosen from hundreds of thousands of SMEs registered on Ali B2BG, Taobao and Alipay. Presently, ZAMCC is only able to offer working capital loans. ZAMCC hopes to expand their product offerings in the near future to include other loan products, which will provide greater support in long-term SME growth.

Alibaba has a history of supporting and promoting the growth of SMEs in China. In the last three-years, Alibaba Group has provided RMB 12.8 billion towards the development of SMEs either through direct funding or in cooperation with banking institutions. The incorporation of e-commerce technology into this model demonstrates Alibaba’s willingness to “pave new roads” in the field of financial inclusion to SMEs. By supporting its existing SME clients financially, Alibaba is also helping to develop and grow its client base, which will inherently benefit Alibaba’s core B2B businesses as well.

By having a pool of potential clients, and their corresponding data, readily available via online platforms, this model of issuing SME loans could be expanded and replicated to greatly increase financial services to the unserved entrepreneurs of China. However, given the highly-regulated nature of the banking and microfinance industry, it will be interesting to see how Alibaba navigates the restrictions. For example, given the geographic limitations of MCC companies, ZAMCC is limited to lending only within Hangzhou city. The flexible nature of the e-commerce business posses the question of whether only SMEs with headquarters in Hangzhou are eligible, or if SMEs with any operations in Hangzhou may also apply. Whatever the fine print may be, it is clear that in order to truly utilize an e-platform and continue to grow, ZAMCC will have to find ways to expand to new geographies.

Alibaba founder Ma Yun’s acknowledgement of the importance of financial inclusion in China and the lack of “real” microcredit (i.e., loans less than RMB 50,000) reflects a sensitivity and understanding to the current financial environment. Planet Finance applauds Alibaba’s commitment and innovation in the field of microfinance and hopes to see other Chinese organizations take the lead in nurturing the SMEs in their industry.

Source:
http://finance.ifeng.com/stock/roll/20100608/2291602.shtml
http://tech.sina.com.cn/i/2010-06-09/01404287569.shtml
http://www.cnetnews.com.cn/2010/0609/1772469.shtml
http://news.xinhuanet.com/society/2010-06/10/c_12204253_4.htm