China is mulling licenses for non-depository lending institutions amid the booming credit market, according to a draft regulation issued by the Legislative Affairs Office of the State Council on Wednesday.
The draft regulation proposed that organizations or individuals not licensed by regulatory authorities should be prohibited from issuing loans.
Licensed non-depository lending institutions are not allowed to take deposits in any forms, but should issue loans backed mainly by their equity fund or money raised through bonds, according to the draft.
Limited liability companies must have registered capital of no less than 5 million yuan, and share-holding companies no less than 10 million yuan, the draft regulation continued.
China's credit market has boomed in recent years, and various non-depository lending institutions have been playing an active role in lending to small and medium sized enterprises, agricultural business and low-income groups.
However, a large number of institutions, masquerading as investment consulting firms or investment guarantee companies, are actively lending under lax supervision, leading to many cases of illegal fund-raising.
In 2009, a Chinese tycoon, Wu Ying, was sentenced to death for cheating investors out of 380 million yuan (61.1 million U.S. dollars) in private lending scams. Her sentence was eventually commuted to life imprisonment.
The draft regulation has been released for public opinion. The public can give their opinions via chinalaw.gov.cn until Sept. 12.