Article 1       With a view to promoting and directing banks to provide financial services to small enterprises and to gradually adjust and improve banks¡¯ credit assets¡¯ structure, the Guidelines on Banks¡¯ Lending to Small Enterprises (hereinafter referred to as the Guidelines) is formulated on the basis of the Law of the People¡¯s Republic of China on Commercial Banks, the Law of the People¡¯s Republic of China on Banking Regulation and Supervision, and the State Council¡¯s Guidelines on Supporting and Directing the Development of Self Employed Individuals (SEIs), Private Enterprises and Other Private Sector Economy, and other related laws and regulations.

Article 2       The term ¡°small enterprises¡± referred to in the Guidelines shall cover all the small enterprises and the SEIs of different ownership and different organizational structures. The categorization of a small enterprise shall be defined according to relevant provisions of the Provisional Rules on Criteria of Small and Medium Sized Enterprises, the Interim Measures for Statistical Definitions of Large, Medium and Small Sized Enterprises, and the Supplementary Criteria for Defining the Large, Medium and Small Non-industrial Enterprises.

The term ¡°lending¡± referred to in the Guidelines shall cover both on-balance and off-balance credit and financing products, including loans, trade finance, discount, factoring, loan commitment, guarantee, letter of credit and banker¡¯s acceptances.

The term ¡°banks¡± referred to in the Guidelines shall include policy banks, commercial banks and rural cooperative banks that engage in small enterprise lending business. Urban credit cooperatives may also refer to the Guidelines for undertaking small enterprise lending activities.

Article 3       Banks shall undertake the small enterprise lending business under the principles of making independent business decisions and bearing their own profit, loss and risk, and shall regard the sustainability on a commercial basis as the primary goal of this business. 

Article 4       As policy banks do not have an extensive branch network, they may work with small and medium-sized commercial banks and guarantor institutions to provide small enterprises with loans or guaranteed loans. Policy banks shall follow the principles of market-orientation and effective risk control, and provide the small and medium-sized commercial banks with funds and technical assistance to help them improve their services for small businesses, while the responsibility of controlling the associated risks shall rest with the lending banks.

Article 5       Each of the banks shall establish a specialized department to undertake small enterprise lending activities, and to provide specific guidance and conduct standalone evaluation on small enterprise lending operations.

Each bank branch shall set up a separate and specialized business department or a team to undertake small enterprise lending business, and the cost and profit shall be measured separately in the management accounting and internal accounting systems.

Each of the banks shall establish a client manager system for small enterprise lending business. In practice, two client mangers shall manage the same group of clients under the ¡°four-eye¡± principle.

Article 6      Banks shall, in accordance with the features of the small enterprise lending business, develop innovative systems for evaluating the creditworthiness of borrowers, underwriting new loans, controlling the inherent risks, managing the human resources and internal controls.

Article 7      Banks shall, in accordance with the features of the small enterprise lending business, establish an appropriate incentive system, set up a mechanism of evaluating, rewarding and disciplining the client managers relative to their performance review, and develop an appropriate credit culture suitable to the small enterprise lending business.

The remuneration of each small enterprise loan officer shall be determined in accordance with his or her business volume, profit and loan quality, and shall be subject to no ceiling. The evaluation indicators of the loan officers¡¯ performance shall include: the number and amount of monthly loan disbursement; the monthly number and loan disbursement volume of new clients; the delinquency rate and loss rate; the outstanding volume and the number of disbursements, etc. Among all the indicators, the quality of loans and the monthly number of new loans should be given a high weighting. 

Article 8       Banks shall target specific segments of the small enterprise lending market, develop a marketing strategy according to the needs of small enterprises, and pursue product innovation to provide small enterprises with the needed loan products and financial services, including fixed asset loans and working capital loans.

Fixed asset loans include loans for purchasing or constructing factory buildings, or for purchasing equipments. Loans for purchasing or constructing factory buildings may be given a grace period (where clients pay interest only) in accordance with the status of each small enterprise. Working capital loans include loans for letter of credit, loans for purchasing raw materials and normal working capital loans. To apply for a loan for letter of credit, a small enterprise shall present an irrevocable letter of credit. The volume of such a loan shall be determined according to the lending risk level and be no larger than 80% of the amount of the letter of credit. To apply for loans for purchasing raw materials, a small enterprise shall present Usance Letter of Credit and a banker¡¯s acceptance. The volume of such a loan shall be determined in accordance with the lending risk level and be no larger than 80% of the amount of the letter of credit or the volume of the banker¡¯s acceptance. The volume of a normal working capital loan shall be in principle no larger than 20% of the turnover specified in the tax declaration of the borrowing enterprise in the previous year, and the term of such loan shall be no longer than 360 days. All the interest and principal of a normal working capital loan shall be repaid by the end of the loan term.

The small enterprise lending products shall be diversified by the minimum amount, interest rate level, security requirements, loan maturity and repayment schedule so as to satisfy the different choices by different borrowing enterprises.

Article 9       Banks shall try their best to standardize loan products and operating procedures, simplify lending procedures, reduce layers for loan approval and reduce the application processing time in order to increase efficiency, cut cost and improve services. 

Article 10       Banks may examine a small enterprise¡¯s loan application based on the actual conditions of the borrowing enterprise, but not merely on its financial statements, business plans or other documentation. Banks shall focus on non-financial information and behavior factors collected via on-site investigations, shall pay field visits to carry out in-depth investigations into the production, operation and sales activities of the borrowing enterprise, and shall, by way of direct communication with the enterprise¡¯s management, learn the business conditions and the creditworthiness of the borrowing enterprise. Banks shall also collect information via different channels about the income, expenses and creditworthiness of both the borrowing enterprise and the entrepreneur¡¯s family so as to reduce the information asymmetry between the lender and borrower.

Article 11     A small enterprise loan officer shall, following the collection and analysis of the borrower¡¯s information, prepare a brief financial statement containing all the key financial data of the borrower, and conduct focused analysis on the borrowing purposes, cash flow of the borrower¡¯s business, borrower¡¯s repayment capacity, and borrower¡¯s creditworthiness and character. If necessary, the borrowing enterprise and the entrepreneur¡¯s family shall be considered as a whole economic unit, and their overall repayment capacity and creditworthiness shall be examined and assessed.

Each loan officer shall, following the loan investigation and analysis, submit a loan proposal in writing to the department or person responsible for loan review.

Article 12       The loan officer shall be responsible for the completeness and reliability of all the information contained in the loan proposal. In case of breach of duty, they shall be disciplined according to relevant rules.

The loan officer shall clearly state in the loan proposal whether he or she is in any way related to the borrower.

Besides stating the borrowing purpose, borrower¡¯s repayment capability, the creditworthiness of the entrepreneur, and the likelihood of repayment, a loan proposal shall include the loan officer¡¯s recommendations regarding the loan amount, security requirements, interest rate and repayment schedule.

Article 13       The loan approval shall be based on the business cash flow, creditworthiness and character of the borrower, and be secured by the qualified assets as well as assets and property to be generated by the loan proceeds. Only when the primary source for loan repayment is insufficient, may the borrowers be required to provide effective security for the loan.

Article 14       Where laws allow, banks shall explore new ways to take collateral or pledge over personal property and rights, and be flexible in seeking the kinds of collateral that both enable the borrowing enterprise to obtain the loans in a convenient manner, and help banks to exercise effective repayment control and ensure collection of repayments.

Article 15       Banks shall make the best of the liberalization of interest rates and introduce an appropriate risk-based pricing system for small enterprise lending business.

Where laws allow, banks shall charge different interest rates on different borrowing enterprises based on banks¡¯ judgment of the inherent risks, financing and loan management cost, profit target and the prevailing interest rates of the local market and adjust rates as conditions change.

Article 16       The maturity and repayment schedule of small enterprise loans shall be determined in line with the borrowing enterprise¡¯s cash flow. Depending on the actual needs, a borrowing enterprise may service the loan with equal installment and, as necessary, a grace period (where clients pay interest only) or other means for the benefit of the borrowing enterprise. Banks shall also pay close attention to the control and monitoring of the loan repayment after loan disbursement to reduce risks.

Article 17       Banks shall decentralize the small enterprise loan approval authority and streamline the loan approval procedures provided that the risks are well under control, so as to enhance the loan approval efficiency and to provide quick and convenient services to small enterprises.

Article 18       Banks shall put into place appropriate risk controls according to the requirements of small enterprise lending procedures. In addition to the proper separation of loan origination and approval, pre-disbursement investigation and post-disbursement monitoring, banks shall establish and strengthen effective incentive and controlling systems to motivate loan officers and ensure the adequate representation and reliability of the borrowers¡¯ information and loan proposal.

Article 19       Loan officers shall be responsible for post-disbursement monitoring, keep close contact with the borrowing enterprises, and be well informed about the status of the borrowers¡¯ businesses. Where material events occur that may affect the repaying ability of the borrower, the loan officers shall report the event to the bank management in writing and take necessary actions.

The loan officers shall be responsible for the collection of past-due loans. Where legal proceedings are needed to ensure loan collection, the case may be transferred to other relevant departments.

Article 20       Where a well-run small enterprise with a good record of interest and principal payment needs an extension or restructuring of a loan, it shall summit an application in advance. The loan officer shall review and assess the application and report his or her recommendations in writing to the authorized department for approval. Only with the approval of the authorized department, can the loan be extended or restructured.

Loan officers shall present written explanations for recommending a reduced loan commitment or refusal of a loan extension. The mentioned case shall be submitted to the authorized department for review and be dealt with separately to ensure adequate risk control. The borrowing enterprise shall be informed of the reviewing results and respective requirements within two weeks.

Article 21       Banks shall develop enough incentives or restrictions to encourage better repayment by borrowers and raise the borrowers¡¯ awareness of creditworthiness. A borrower with an excellent credit record may be given a favorable treatment in terms of loan amount, maturity, interest rate and security requirements. For a borrower with a bad repayment record, the lending bank shall stop disbursing the loans to the borrower, press on with loan collection, and impose penalty charges, and at the same time make known the borrower¡¯s behavior to the public or to the sector in which the borrowing enterprise operates.

Article 22       Banks shall put into place a data system and a management information system (MIS) appropriate for the small enterprise lending operations. The MIS shall record and gather all the information of the previous loan applications and repayment, help loan officers monitor the status of delinquent loans, including the type of past-due loans (divided by fixed asset loans and working capital loans), overdue days, repayment of arrears and outstanding amount. The MIS shall also enable loan officers to learn about the borrower¡¯s normal repayment situation.

Article 23       The small enterprise loan officer shall have a good character with no bad record.

Banks shall provide specialized and sufficient training for the loan officers prior to their appointment, which shall familiarize them with the principles, methodology and nature of small enterprise lending business. Through ongoing training, banks shall make sure that loan officers acquire necessary expertise and knowledge for conducting the small enterprise lending business, be able to accumulate work experience and lessons learned, and carry out the related policies and procedures in good faith.

Article 24       Banks shall establish appropriate systems for due diligence, accountability and waiver of responsibility pertaining to small enterprise lending business. Banks shall review the compliance of each small enterprise lending activity and shall discipline or discharge the persons accountable for non-compliance with relevant regulations.

Article 25      Banks may, based on their own practical situation, establish their own detailed operating procedures and rules for implementing the Guidelines.

Article 26       The loss provisioning and write-off rules for small enterprise lending business shall be formulated in accordance with the Methods of Provisioning for Bad Debts of Financial Enterprises (MOF [2005] No.49), Methods of Bad Debt Write-off of Financial Enterprises (MOF [2005] No.50) and Guidelines on Loan Loss Provisioning of Banks (PBOC [2002] No.98).

The China Banking Regulatory Commission (CBRC) shall coordinate with other related government agencies to set specific policies for small lending in terms of classifying loans, provisioning against loan loss, writing off the bad loans and calculating capital adequacy, etc., so as to create a favorable regulatory environment for banks¡¯ small enterprise lending business. At the same time, the CBRC shall strengthen the evaluation of loan concentration, guide and urge small and medium-sized banks to adjust their business strategy and asset portfolio to meet the market demands for small enterprise lending. In addition, the CBRC shall mobilize and utilize domestic and foreign resources to provide necessary technical assistance and training services for banks to improve their financial services to small enterprises.

Article 27       Banks shall report to the banking supervisory authority the information of their small enterprise lending business, including loan volume, default rates, loss rates, and loan extension.

Article 28       The power of interpretation of the Guidelines shall rest with the CBRC.

Article 29       The Guidelines shall become effective as of the date of its promulgation.