China Commercial Credit has amassed a considerable microcredit empire in the thriving eastern coastal province of Jiangsu. Founded only five years ago, the company now services over 360 SME (small-to-medium enterprise) clients, as well as farmers and individuals with direct loans and loan guarantees. The company’s primary footprint is in and around Wujiang City (1.5M people) where the company has its headquarters, a city which has boomed on the back of Jiangsu Province (79M people in 2011) having one of the highest population densities in all of China and being home to many of the world’s top electronics equipment exporters.
Prevailing legislation in China has brought in banking reforms that have opened up microcredit lending at competitive rates for SMEs, farmers, and individuals (who previously were unable to borrow from State-owned and commercial banks), sending CCCR’s business model through roof. The entire microcredit space in China is expanding rapidly now, with some 5.6k microcredit companies across the country managing an outstanding loan balance of $83B in the aggregate (September 2012, PBOC). Mounting demand from these SMEs, who have historically been a massively under-served market and relegated to high interest rate, often illegal lenders, creates a fertile soil for CCCR’s growth strategy.
Via the company’s subsidiaries and other contractual arrangements, CCCR is helping to stimulate this entire business sector and aiding China’s concerns about inflation, fulfilling the CBRC (China Banking Regulatory Commission)/PBOC 2008 guidance mandate with a new type of financial vehicle that can jump-start the microfinacing of small borrowers. By fusing the loan and services umbrella of state-owned and commercial banks, while tapping into such a large and healthy under-served market, CCCR is poised to seriously leverage their stable relationships with local branches of both types and capture considerable market space in the process. The company is looking to grow their lending capacity through revenue generation and an increase in the registered capital of their primary operating unit, Wujiang Luxiang (just over $44M as of March 31), subsequently moving to acquire choice targets in the microcredit space in and even around Jiangsu (Zejiang and Shanghai microcredit companies generating returns in the 15.68% and 11.56% range respectively).
Offering fixed interest rates to the borrowers, CCCR has been pulling in one to twelve month loan size, duration, and rate returns of $16k to $320k (as of March 31, 2013), on an average annual interest rate of 15.01%, further shoring up third party lending opportunities with guarantees to the SMEs. Strict underwriting protocols have brought back a sub 5% extension rate and because the company really works hand-in-hand with its customers as well, they have a huge turnover in renewed loans, accounting for 73.26% of the total outstanding direct loan balance in 2012 (Dec 31) and a full 90.30% as of March 31 this year. Keep in mind that none of the company’s direct or renewed loans are for more than a 12-month term and that the Jiangsu microcredit space is ripe for acquisitions, with roughly 465 companies chasing just under $16B total loans outstanding last year and it is easy to see the company’s springboard strategy for growth.
The credit crunch policy in China has really bolstered the microcredit arena in general and since the CBRC lifted restrictions on commercial banks in 2004, allowing them to operate outside the city in which they were located for the first time, the M&A furnace has gotten hotter and hotter, with smaller local commercial operations forming into regional banks. The increasingly important role that SMEs play in the Chinese economy (around 60% of GDP and 80% of employment in 2012) will only sweeten the pot for CCCR, who will be squarely focused on expanding their direct loan and guarantee infrastructure among them, as well as among individuals and farmers.
Management’s solid underwriting skills really have been a major key to the company’s resounding successes and the General Manager of Wujiang Luxiang is the principal decision maker and leader of the management team across all subsidiaries, with his authorization required on all key aspects of the loans (based on their risk management department’s assessment report). This is an incredibly efficient little company in a province where the average return on capital for microcredit companies is 10.70% and where there is strong future growth potential due to historically underserved borrowers simply not addressed by state-owned and commercial banks. CCCR did a rather successful IPO awhile back on Aug 13, bringing in net proceeds of just over $7.54M (1.37M shares at $6.50 per share) and so has already beefed up their registered capital, as well as lending and guarantee capacity.
For more information on China Commercial Credit, visit www.ChinaCommercialCredit.com
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