August 25, 2016 / 5:20 AM / a year ago

Supervision of micro-finance should tighten: China cbank official-Caixin

SHANGHAI, Aug 25 (Reuters) - China should tighten its supervision of the micro-finance industry to guard against risks to financial stability, Chinese news outlet Caixin reported China central bank vice governor Chen Yulu saying at a Beijing conference on Thursday.

Chen’s comments come after the country’s banking regulator on Wednesday released detailed rules to curb an unruly peer-to-peer (P2P) lending sector, underlining China’s commitment to the clamp down on a sector riddled with runaway managers and pyramid schemes.

Microfinance has grown quickly in China, driven by demand from cash-starved small- and medium-sized enterprises who are turned away by traditional lending institutions that lean towards risk-free state-owned enterprises. P2P firms are microfinance companies.

Chen said that micro-finance firms and traditional lending institutions are operated and managed differently, so regulation should take this into account by remaining flexible.

At the same time, regulation of micro-finance needs to improve by accounting for risks in the different sectors that firms operate in, Caixin reported Chen saying at a microfinance conference.

Although P2P and traditional lenders are supervised by the banking regulator, Chen said the central bank will promote micro- and inclusive-financing as an important part of supply-side structural reforms, using monetary and credit policy tools, improving supporting structures and supporting innovation among other things.

Reporting by Engen Tham; Editing by Shri Navaratnam

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