Alipay starts online financing for SMEs

Zhaocai Bao was designed to connect the investment activities of 300 million individual investors in China with the financing needs of 1 million small and medium-sized enterprises. Its annual sales volume is expected to reach 1 trillion yuan in the next two to three years. [Photo / China Daily]

China's largest online payment provider Alipay announced the official launch on Monday of Zhaocai Bao, an Internet finance platform that aims to reshape financing for small businesses to the tune of 1 trillion yuan ($162 billion) within three years.

For investors, the Zhaocai Bao (Money-drawing Treasure) platform offers products with average annualized returns of between 5.4 percent and 6.9 percent. In comparison, the annualized return rate for Yu'ebao, China's largest money market fund, has fallen to about 4.1 percent since its launch in June 2013, while China's one-year fixed-term deposit rate is 3 percent.

Zhaocai Bao is different from Yu'ebao as its major product consists of loans to small businesses, while the latter is a money market fund managed by Tianhong Asset Management.

"We aim to connect the investment activities of 300 million individual investors in China with the financing needs of 1 million small and medium-sized enterprises," said Yuan Leiming, CEO of Zhaocai Bao.

In addition to the higher return rate, Zhaocai Bao has set the threshold for investors at a mere 100 yuan. And risk of bad loans is underwritten by insurance companies.

Although products on Zhaocai Bao are bound by a fixed maturity ranging from three months to three years, investors are allowed to "liquidate" the product before its due date by transferring it via the platform to other investors, after paying a 0.2 percent transaction fee, so they can still enjoy the original annualized return rate.

At the borrowers' end, Yuan said the financing cost for SMEs on Zhaocai Bao is about 7 percent, much lower than the average 18 percent financing cost for small and medium-sized companies, and the time it takes to borrow money can be as short as 10 seconds.

"The traditional approach for banks is to collect small pieces of capital, put them into a pool and then go search for borrowers, which pushes up the overall cost," Yuan said.

"Our capability of cloud computing and big data processing enables direct integration of every piece of capital with the borrowers, which significantly reduces the cost," he said, adding that the average Zhaocai Bao deal totals around 200,000 yuan and that Zhaocai Bao takes a 0.1 percent transaction fee on every deal.

Since a test run in April, Zhaocai Bao has already sold 11.4 billion yuan in financial products to a half-million customers, according to its official Web page, which is linked to Taobao.com. Forty financial institutions are currently working with the platform, while another 100 are waiting in the line.

By comparison, Yu'ebao currently has about 100 million users with transactions totaling 600 billion yuan.

"The aim for Zhaocai Bao is to reach 1 trillion yuan annual sales volume over the next two to three years," Yuan said.

According to independent statistics, China is home to 800 online lending websites, with close to 100 billion yuan worth of transactions in 2013.

Chen Jin, CEO of China's first online insurance vendor, Zhong'an Insurance - which is also one of Zhaocai Bao's partners - said the transition from Yu'ebao to Zhaocai Bao reminds him of Taobao.com and Tmall.com, and marks a strategic transformation for China's largest e-commerce conglomerate, Alibaba Group Holding Ltd.

Wu Zhigang, chief information officer for China National Investment and Guaranty Co, said that as most of China's individual investors are vulnerable to risks, a platform like Zhaocao Bao could effectively lower those by offering a high degree of information and comparisons.

"It's a good example of inclusive finance," he said.