(Yicai Global) Jan. 20 -- Xiaomi has got approval from China Banking and Insurance Regulatory Commission to set up Chongqing Xiaomi Consumer Finance in the country's southwest, CBIRC announced on its website on Jan. 17.

Beijing-based Xiaomi thus joins the ranks of and will now have to play catch up with internet technology giants Baidu and Alibaba Group Holding, which already have consumer finance licenses in hand.

Xiaomi's Zhuhai, Guangdong province-based micro-finance subsidiary had its business license revoked in a crackdown on online lending, media portal TechNode reported. Xiaomi also has another micro-finance unit in the southwestern Chinese commercial hub of Chongqing, but its connection with the new company is unknown.

The CBRC advised that the new entity must form within six months of the approval dated Jan. 10, per the report.

Xiaomi shares [HKG:1810] rose to close up 2.11 percent this morning at HKD13.52 (USD1.97). Its stock closed at HKD13.24 (USD1.70), up 8.35 percent on Jan. 17.

Chipping In

Xiaomi Communications, Chongqing Rural Commercial Bank, Chongqing Jinshan Science & Technology, Chongqing Dashun Electrical Appliance, and Chongqing Jinguan Jielai Hardware and Machinery jointly invested in the new company, which has CNY1.5 billion (USD219 million) in registered capital.

CBIRC did not mention Xiaomi's shareholding ratio in the statement, but its Chongqing branch stated it was 30 percent in November.

Founded in May 2015, Xiaomi Finance is the financial service platform under the Xiaomi Group, and its business is small internet loans and internet wealth management and supply chain finance services. Xiaomi tested the waters of the consumer finance business through this micro unit. Its consumer loan balance was CNY25.9 billion (USD3.8 billion), its installment balance was CNY590 million (USD86 million), while its total loan balance was CNY26.48 billion as of May 31.

The leverage ratio of an online small loan firm is only two to three times its registered capital, and the lending scale of consumer finance companies can hit 10 times that amount, which also explains why Xiaomi will register a consumer finance company.

Xiaomi Finance only took in 2 percent of its parent's CNY174.9 billion (USD25.5 billion) annual revenue, but its yearly growth was almost fourfold, which indicates that consumer finance will become key in Xiaomi's future ecology.

Chongqing is one of China's four cities -- along with Shanghai, Beijing and Tianjin -- directly under central government administration.

Editor: Ben Armour