(Yicai Global) July 27 -- China's small loans sector continued to contract in the first half of the year because of tougher regulation and competition among other factors, according to central bank data.

The number of small loan providers in the Chinese mainland fell by 270 in the six months ended June 30, with the total lent dropping by CNY83.7 billion (USD11.7 billion), figures from the People's Bank of China showed earlier this week.

Based on the data, the industry is shrinking at a faster pace this year. In the whole of last year, the ranks of small lenders and the outstanding loan balance shrank by 495 and CNY33.7 billion, respectively.

As of the end of the second quarter, 5,688 small lenders had extended CNY827 billion (USD116 billion) of loans, down 113 and CNY45.2 billion from the end of the first quarter, the data also showed. The two figures plunged by 157 and CNY38.5 billion over the first three months of 2023.

Also, the number of people employed by small lenders fell by nearly 5,000 to 52,000 at the end of the first half from Dec. 31, 2022.

Chongqing was the mainland provincial-level region where the small loan sector contracted the most last year, as the outstanding loan balance sank by CNY41.5 billion. But it remained the only such region along with Guangdong province to have a balance exceeding CNY100 billion as of June 30, according to the data.

Chongqing's small loan balance once accounted for nearly 30 percent of China’s total, but the figure fell to 26.2 percent by the end of 2022 and to 19.2 percent at the end of the first half of this year.

In 2015, when the industry was at its peak, there were 8,951 small loan providers in the mainland, that had lent a total of about CNY959.4 billion. And the sector’s headcount exceeded 114,000.

Since then, small lenders have been squeezed by regulations and competition with each other as well as banks and consumer finance companies, insiders told Yicai Global.

Compared to banks, small lenders have fewer advantages in terms of customer acquisition costs, risks control, loan rates, fund resources, and other aspects, the insiders noted, adding that lenders with no online business qualification are more likely to run into operating difficulties as they are not allowed to operate across provinces.

Moreover, regulators are keeping a closer eye on compliance among small loan providers than before, staff at the firms told Yicai Global. Besides, the number of business licenses awarded to small loan providers will continue to fall because of the new regulatory system, they added.

According to new regulations published in November 2020, an entity cannot hold shares in more than two small lenders with online business licenses operating in different provincial-level regions nor control more than one small loan provider.

Editors: Tang Shihua, Futura Costaglione