(Yicai Global) Nov. 22 -- All US-traded Chinese internet finance firms including recently-listed Qudian Inc. [NYSE:QD], saw share prices slump following the decision of China's internet finance market regulator to stop issuing licenses to new online microloan businesses.
The move is connected to the crackdown on cash loans, and is only the start of related regulation, industry insiders said.
The high-level risks associated with such cash loan businesses contributed to the State Council's decision. More policies are expected to follow as part of a clampdown on related firms, and they will have a major impact on their existing business models, scale and profitability.
Online microloans constitute only one kind of lending license issued by the government, and there are ample such microloan services currently operating in the market. They are subsequently not a highly sought-after product on the secondary market, unlike third-party payment licenses, says Xue Hongyan, director at the Internet Finance Center at Suning Financial Research Institute.
"This policy will seriously affect the cash loan market. At present, cash loan companies only have control over lending activities, with all the funds coming from [financial] institutions. If regulators make online microloan license a mandatory requirement for operating cash loans, the cash loan market will go undergo a reshuffle," said Wang Xiaoting, founder of Beijing Jieyue United Information Consulting Co.
"Microloan firms may need to suspend cash loan operations if they are not licensed for online microloan businesses, so they have been in a race to apply for licenses before regulators roll out new policies," he added.
Online microloan licensing has accelerated this year, and the number of licenses granted in the first seven months is almost equal to those issued last year. As of November, 254 internet-based microloan companies have been licensed, and 226 of them have completed business registrations.
There were 8,610 microloan companies operating in China as of the end of September, and they have lent a total of CNY970.4 billion this year, up CNY30 billion.
The official regulatory policy for cash loan platforms remains unavailable but reports suggest that Alibaba Group Holding Ltd.'s [NYSE:BABA] personal credit rating service, Sesame Credit, and a key risk control partner for many cash loan sites, has ended cooperation with some platforms due to improper debt collection practices.