Alibaba Financial will soon launch the first Alipay user oriented consumer financial product, ¨payment by credit〃. On March 7, Alibaba Group appointed Peng Lei (Lucy Peng) as the CEO of Alibaba Microfinance Service Group. Guo Guangchang, one of the most active entrepreneurs in capital market of China, emphasized the importance of developing financing services for small and micro companies based on the successful case of ¨Alibaba Small Loans〃. He suggested that government should relax the limitations on financing of small loan companies and give tax preference to financing institutions facing small and micro companies.
Capital sources of Alibaba Financial
There are three sources for capital of Alibaba Financial. The capital firstly comes from Alibaba Microfinance co. Ltd (Zhejiang) and Alibaba Microfinance co. Ltd (Chongqing), which were two joint ventures invested by Fosun Group with10% shares, Intime Retail Group with10% shares and Wanxiang Group with10% shares. Two enterprises have 1.6 billion Yuan registered capital and the foremost companies specially providing loan for small and medium sized businesses. According to the regulatory policies, maximum loan amount they can offer is 2.4 billion, the sum of their registered capital and bank loans equal to half of their registered capital. The second capital source of Alibaba Financial is the Shangcheng Financing Secured Co. Ltd. It was founded in Chongqing in 2012 and had a registered capital of 0.3 billion Yuan. Through the company, banks can conduct external credit activities with a line of, usually, many times the amount of registered capital, which boosts the leverage ratio significantly. The last capital source is financing by the means of securitization of financial claims, private placement and equity investment under the permit of regulation and policies.
The features of high-speed and small amount improve the efficiency of capital turnover drastically
The full use of the Internet improved the efficiency of loan approval and origination of Alibaba Small Loans, which is in service anytime. The credit line of Alibaba Small Loans is between 50 and 1000 thousand Yuan. The small loan and dispersed customers not only reduced the default risk, but also scatters the batches of origination and recovery of loans, which guarantees the amount of the capital pool. Besides, According to the features of small and micro e-commerce enterprises, Alibaba Financial launched credit products of different levels by the way of effectively combining the short-term loan of fixed period and the revolving loan to increase the frequency of capital circulation. It encourages borrowers to pay back the loans in a short period by taking measures of bearing interest of a single day but excluding compound interest.
Credit rating and risk control system of Alibaba Small Loans.
Alibaba Small Loans has two forms of loan, fiduciary loan and order pledge. Order pledge means that as long as borrowers deliver its customersˇ orders, which are regard as the guaranty, they can apply for loan secured. Meanwhile fiduciary loan needs the platform of big data to fully mining and analyzing customer information in order to realize accurate and real-time control of customersˇ credit and repaying capability. Both the two forms of loan are based on the developing and utilizing of core resources of e-commerce ecosystem. In terms of risk control, on one hand, it can do real-time control of information, capital and logistics of customers to effectually prevent risks. On the other hand, it can minimize the loss by effectively getting hold of capital of customers in case of customer default.
Value of Internet financial innovation
Foundation of micro-credit: credit worthiness and inclusive finance.
The content and foundation of micro-credit is an affirmation of credit value and an approval of inclusive finance. Credit loan with no pledge is a perfect representation of value assigned to of customersˇ credit, shown on customersˇ daily transaction behaviors. E-commerce platforms provide a good way to grab information on user behaviors and thus satisfy capital needs of companies and individuals that cannot provide pledge and guarantee. The essence of inclusive finance is that everyone should have the right of acquiring financial service which is based on the financial institutionsˇ approval of credit value.
Social value of Alibaba FinancialAccelerate the growing of small and micro companies and promote the reform of traditional finance
Public data shows that medium-sized and small enterprises account for 98% of Chinese enterprises, create 85% jobs, develop 75% new products, invent 65% patents, fuel 60% GDP and pay 50% taxes in China. According to the above statistics, it cannot be denied that medium-sized and small enterprises have become a principal footstone for the economic development and technological innovation of China. Therefore, it is significant to promote the growth of small and micro enterprises.
At present, financial institutions in China are in their critical period of market-oriented reform and overprotection will prevent their financial innovation. For this reason, government should push forward the innovation and process of market-oriented of traditional financial institutions in terms of policies and encourage the involvement of private capital. The emerging and fast growing of Alibaba Financial will speed up the competition between financial trade organizations and therefore motivate the innovation and development of traditional financial system. The catfish effect will take on.
Financial revolution of Internet started from Alibaba Financial
The essence of financial institutions lies on the media of financing and traditional risk control system will be weeded out.
The essence of finance is the circulation of funds and traditional financial institutions, including commercial bank, security company, insurance company, played the role of the medium between suppliers and demanders of capital. Besides, their core businesses are credit rating and risk control systems. Commercial banks of China have basically completed the process of market-oriented reform, but their traditional risk control system and operating style have deviated from the current condition of the fast developing market of private economy. Hence, to reform or to be reformed is an unavoidable problem that decision makers of commercial banks have to consider.
Internet is a highly effective medium and big data assigns value to credit.
Along with the development, Internet as a medium vehicle has obvious nature of high-speed transmission of information. 5,600 million netizens, accounting for 42.1% of the total population of China, can enjoy uninterrupted one-to-one communication through the Internet. Meanwhile, the intermediary advantage of traditional financial institutions faded away. Under the circumstance of the rapid development of e-commerce platforms, finance is becoming a significant channel and orientation in which e-commerce platforms monetize user sources and big data sources. The best use of big data is credit rating and risk control of companies and individuals. Risk control of traditional financial institutions pales by comparison. Furthermore, Internet can warrant efficient use of fund. To sum up, it seems that traditional finance is stepping into a ¨desperate〃 period.
The financial innovation of Internet needs the reasonable re-architecting of regulation and support of policies.
Does the Internet really bring as huge an impact on financial industry as on traditional retail industry and communication industry? Obviously, it is difficult in the current financial system because of the following reasons. For one thing, China is very strict with financial regulation. Even though government is trying hard to push forward the process of market-oriented reform, there are only very few articles of law are put into implementation, and private capital are still excluded from the core business. For another, new small loan companies are still not covered by the financial regulation and they can develop their businesses only relying on their independent capital and bank financing less than 50% of their registered capital. Moreover, due to the current monetary policy, the loan interest rate of commercial banks for small loan companies is apparently higher than the benchmark interest rate. Meanwhile, the development of small loan companies is restricted to some extent owing to the high taxes and the government limitation that caps interest rates charged by makers of micro loans should be lower than four times the benchmark interest rate. Therefore, the Internet financial innovation needs not only Internet practitioners, but also the reasonable re-architecting of regulation and support of policies.