Securitization of small and medium enterprise (SME) and micro loans in China is credit positive as it can ensure funding for a sector that is traditionally underserved by banks, Moody’s Investors Service said on Tuesday.
Securitization will allow small businesses to diversify their funding channels at a competitive price, and offer better protection for investors through a more standardized and regulated product, it said.
The rating agency highlighted a 100 million yuan (US$ 16.11 million) asset-backed securitization deal of Ant Micro Loan (AML), an affiliate of Alibaba, in its statement.
In December last year, AML became one of the first small approved loan lenders to issue asset-backed securities backed by micro loans.
As specialist small loan lenders, such as AML, are not allowed to take deposits while also prohibited from raising funds outside the jurisdiction in which they are located and registered, securitization became a way for them to finance lending to SMEs, Moody’s noted.
“The Ant Micro Loan deal highlights that securitization can help fund micro loan lenders’ activities, and also be an important funding avenue for such groups with ambitions to grow their internet finance business and expand into wider banking services,” Georgina Lee, a Moody’s assistant vice president, said in the statement.
As the Chinese banking regulator plans to grant more “privately-owned commercial bank” licenses, after granting the first batch to major players like AML, new entrants may also consider securitization to compensate for their lack of physical branch networks for attracting deposits, Lee said.
However, for small loan lenders, securitization may not be an easily accessible funding option.
“Quasi-securitization” schemes, where loan assets are packaged and sold on peer-to-peer websites, provide an alternative to raise funds.
Moody’s, however, noted that such schemes are not subject to the same regulatory oversight as securitization transactions, and that they do not offer the same structural protection for investors.
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