Notice of Guangzhou Municipal Financial Affairs Bureau on the Issuance ofImplementation Measures for Surety Insurance on Small Policy-Based Loans in Guangzhou (Revised)
Sui Jin Rong Gui [2018] No. 8
To all district people’s governments, all banks and all insurance companies:
The Implementation Measures for Surety Insurance on Small Policy-Based Loans in Guangzhou (Revised)has been approved by the Guangzhou Municipal People’s Government and is hereby issued for your due implementation. Any problems encountered during the course of implementation should be reported to the Guangzhou Municipal Financial Affairs Bureau.
Guangzhou Municipal Financial Affairs Bureau
October 25, 2018
Implementation Measures for Surety Insurance on Small Policy-Based Loans in Guangzhou (Revised)
Article 1 To implement the guiding principles of the directives of the State Council on supporting the healthy development of small and micro enterprises and reducing the high financing costs faced by small and micro enterprises,Several Opinions of the State Council on Accelerating the Development of the Modern Insurance Service Industry, and the requirements of provincial and municipal implementation plans, and further address financing difficulties faced by agricultural enterprises, tech enterprises, small and micro enterprises, large agricultural entitiesand urban/rural entrepreneurs in Guangzhou through the launch of surety insurance for small policy-based loans,these Measures are enacted pursuant to relevant regulations and in light of the prevailing realities in Guangzhou.
Article2 Basic principles. The government, banks, and insurance companies shall jointly pursue innovative financial service models to address enterprise financing difficulties and promote overall economic and social development in Guangzhou.
(1) Government support and market operations. The sustainable development of surety insurance for small policy-based loans shall be achieved through market-based operations by banks and insurance companies, based upon the provision of government policy support.
(2) Legal compliance and sound risk management. Banks and insurance companies will launch such operations within the scope of their operating licensesin accordance with state financial regulatory requirements and guidance on the development of the financial industry,and in light of the characteristics of their industries. Risk compensation and insurance subsidies will be capped at the scale of their annual capital, thus encouraging banks and insurance companies to enhance risk management, and keep risks within amanageable range.
(3) Emphasizing efficiency and equivalence in duties and rights.Through the government compensation model, the loan risks borne by banks and insurance companies shall be lowered and financial institutions will be encouraged to streamline procedures, enhance efficiency, and expand credit coverage.In addition, the government, banks, and insurance companies will bear loan risks per their respective duties and abide by the principle of equivalence in duties and rights.
Article 3 Overall goals. The government will reasonably allocate fiscal funds and allow fiscal capital to fully exercise their leverage functionthrough the surety insurance model for small policy-based loans to support qualified agricultural enterprises, tech enterprises, small and micro enterprises, large agricultural entities and entrepreneurs in both urban and rural regions. This will better address the barriers and costs of financing that pose difficulties to the survival and development of these market entities in Guangzhou and promote harmonious economic and social development.
Article 4 Loan recipients.
(1) Agricultural enterprises and professional farmers’ cooperatives (agricultural enterprises) that are registered in the administrative division of Guangzhou, are qualified legal persons,and pay taxes in accordance with the law.
(2) High-tech enterprises that are registered in the administrative division of Guangzhou, are qualified legal persons,and pay taxes in accordance with the law, and that meet the requirements of Guangzhou tech industry policies, have high technological expertise, growth potential, capacity for innovation, and independently developed intellectual property.
(3) Small and micro enterprises that are registered in the administrative division of Guangzhou, are qualified legal persons,and pay taxes in accordance with the law, and that meet the relevant provisions ofNotice Regarding the Issuance of Regulations for the Classification Standards for Small and Medium Enterprises (Gong Xin Bu Lian Qi Ye [2011] No. 300). In addition, such enterprises should have been in regular operation for more than one year and have promptly submitted and publicly disclosed their annual reports.
(4)Large agricultural entities and urban/rural entrepreneurs (including individual industrial and commercial proprietors)who engage in commercial operations in the administrative division of Guangzhou.Such recipients must have a Guangzhou household registration or have participated in Guangzhou’s social insurance system for 1 year or more.
Specific loan recipients shall be jointly determined by banks and insurance companies based on the above standards. Individuals and enterprises that have been judged by a court to have engaged in breach of faith or done so in fields such as environmental protectionwill not be eligible for support from these Measures.
Article 5 Qualifications of banks and insurance companies. Banks should be qualified toissue small loans,have sound risk management capabilities and have a low rate of non-performing loans to the above market entities. Insurance companies are required to have the ability to provide surety insurance services for small loans. A bank may select only one collaborating insurance company, while an insurance company may choose to collaborate with several banks.
Article 6 Loan size and duration. Loans to a single enterprise or individual may not exceed CNY 5 million in size or 1 year in duration. Loans may only be used for business purposes, not consumption or other purposes.
Article 7 Loan interest rates and insurance premiums. Financing costs are comprised of bank loan interest, surety insurance premiums and supplementary insurance premiums. Fees other than interest and insurance premiumsmay not be charged.
(1) Interest rates for bank loans may not be higher than 30% above the base rate determined by the People’s Bank for the period.
(2) The sum of premiums for surety and supplementary insurance may not exceed 3% of the loan principal. Insurance premium subsidies equal to 1% of the loan principal shall be provided to eligible borrowers of surety insured small loans.
(3) Banks and insurance companies may, based on the credit situation of borrowers, loan size, loan duration, industry characteristics, and other relevant factors, implement differentiated interest rates or insurance premiums.Where the borrower is able and willing to provide pledges or mortgages,banks and insurance companies should appropriately lower loan interest rates and insurance premiums.
Article 8 Conditions for insurance payouts. Circumstances where the borrower fails to fulfil his or her obligation to repay loan interest and principalper the terms of the loan agreement and fail to repay due principal or interest for more than 60 days (inclusive) during any period, or where the bank notifies that the loan shall be repaid in advancebased on the terms of the loan agreement, shall be deemed as an “insurance incident”. The bank may submit an insurance claimto the insurance company, which shall not reject the said claimfor any reason, except where judicial authorities determine that the loan was issued in contravention of regulations, or where the bank colluded with the borrower. Insurance payouts shall be disbursed no later than 30 days of the date when the bank requests repayment.
Article 9 Risk apportionment.
(1) For each non-performing loan, the insurance company shall bear 80% of the principal losses, while the bank shall bear 20%. The small policy-based loan surety insurance fund will fully compensate insurance companies for the part of the loss compensated by the insurance companyexceeding 150% at the end of each quarter. Government compensation shall be capped at the annual size of the small policy-based loan surety insurance fund.Interest losses shall be borne by the bank.
(2) Compensations to be borne by the small policy-based loan surety insurance fundshall first be paid by the insurance company, which shall then apply for compensation from the Municipal Financial Affairs Bureau.
Article 10 Insurance premium subsidies. Whenissuing insurance policies to the borrower,insurance companies will indicate the insurance premium subsidies, equal to 1% of the loan principal, that will be disbursed by the small policy-based loan surety insurance fund to the borrower. Insurance companies will deduct these monies in advance when collecting insurance premiums. Insurance companies should then apply for reimbursement from the Municipal Financial Affairs Bureau.
Article 11 Funds for risk compensation and insurance premium subsidies. Funds for risk compensation of small policy-based loan surety insuranceandinsurance premium subsidies will be established. Municipal finance authorities will allocate CNY 30 million to the small policy-based loan surety insurance fund from the dedicated funds for financial development under the Guangzhou Local Financial Supervision and Administration Bureau each year. Risk compensation and insurance subsidies will be capped at CNY 30 million; excess amounts shall not be supported by the government.
Article12 Establishment of a “loan risk halt mechanism”.When the overdue loan rateof a bank reaches 10%, the said bank shall temporarily suspend such operations. The Municipal Financial Affairs Bureaushall, together withfinancial regulatory authorities, carry out special investigations on these operations.
Article 13 Requirements formanaging income from insurance premiums. Insurance companies are required to establish separate insurance codes for the accounting of surety insurance for small policy-based loans,and beable to issue separate income statements and provide accurate data on underwritten claims that clearly reflect income from premiums, expenditures on claims, expenditures on fees, and profit and loss.When the underwriting margin of the insurance company from these operations exceeds 5%, the excess portion shall be deducted when applying for risk compensation from fiscal funds. After the expiry of the insurance contract, the portion of the actual underwriting marginexceeding 5% shall be paid to municipal finance authorities.
Article 14 Responsibilities of banks and insurance companies.
(1) Banks should, based on the characteristics of agricultural enterprises, tech enterprises, small and micro enterprises, large agricultural entities, and urban/rural entrepreneurs (including individual industrial and commercial proprietors),establish corresponding risk monitoring systems, and strictly ensure the quality of small loans throughout the process, including pre-loan investigations, review during the loan period, post-loan follow-up management, collection of overdue monies, and recovery of losses. Banks shall calculate the non-performance rate of such loans as follows: Non-performance rate = total non-performing loans issued / total loans issued. In particular, total non-performing loans issued include the principal losses borne by the bankand compensations received from insurance companies and government funds.
(2) Insurance companies shall focus on examining theauthenticity of loans and whether enterprises applying for loansmeet relevant requirements, and provide enterprises with credit enhancement services. Insurance companies that believe there are higher levels of risk associated with the loan may conduct independent investigations and veto loan approvals made by the bank. During this period, these may be independently carried out by several insurance companies; alternatively, insurance companies may voluntarily establish a consortium to provide standard insurance services.
(3) With respect to credit risks caused by negligence or willful issuance of loans in contravention of regulations by banks,and rejection of insurance applications or claims without proper reasonby insurance companies, relevant authorities shall, in accordance with the law, hold relevant entities or persons to administrative account.Those suspected of having committed criminal offenses shall be reported to judicial authorities.
Article 15 Operational procedures of the bank.
(1) Qualified banks mayissue letters of intent to Municipal Financial Affairs Bureau, wherein they undertake that they possess the qualifications for providing surety insurance for small policy-based loans and express their willingness to implement the provisions of these Measures and assume corresponding legal liabilities,among other content.
(2) Relevant banks shall negotiate and sign collaboration agreements with insurance companies, wherein the rights and obligations of both parties, the apportionment of risk, and relevant legal liabilitiesare clearly specified.
(3) Processing loan applications submitted by borrowers.
(4) Conducting credit investigations and risk assessmentswith respect to borrowers based on the relevant provisions of management systems and operational procedures,and carrying out the review and approval of the said operations,and other related work.
(5) Signing loan agreements with eligible loan applicants and disbursing loans to them after all procedures are completed.
Article 16 Operational procedures of the insurance company.
(1) Qualified insurance companies mayissue a letter of intent to the Municipal Financial Affairs Bureau, wherein they undertake that they are eligible for small loan surety insurance and are willing to abide by the provisions of these Measures and assume corresponding legal liabilities.
(2) Relevant insurance companies shall negotiate and sign collaboration agreements with insurance companies, wherein the rights and obligations of both parties, the apportionment of risk, and relevant legal liabilities are clearly specified.
(3) Verifying the authenticityof loans reviewed and approved by banks,as well as whether loan applicants meet relevant requirements.
(4) Signing small loan surety insurance agreements and supplementary insurance agreements with qualified loan applicants, and bearing liabilities for loan surety insurance and supplementary insurance per the terms of these agreements.
(5)Compiling statistics on the state of operationsand report these matters to the Municipal Financial Affairs Bureauon a quarterly basis, and retain relevant proof of transactionsfor inspection purposes.
Article 17 Organizational leadership. To ensure that work proceeds smoothly, under the unified leadership of the municipal government, and led by Municipal Financial Affairs Bureau, the People’s Bank, authorities in charge of financial regulation, industry and commerce, agriculture, science and technology, industry and information technology, and public security, as well as banks and insurance companies, will convene meetings on an ad-hoc basis to study and address relevant major issues and promote smooth work progress.
Article 18 Division of duties among departments.
(1) The Municipal Financial Affairs Bureaushall, in conjunction with relevant authorities and parties, study and draft work plans, organize and carry out relevant work, track and summarize work progress, audit reports related to the small policy-based surety insurance fund,supervise the separate premiums income accounting and management by insurance companies,and ensure that tasks related to fund performance target management, performance assessments, and public disclosure of relevant information are properly carried out.
(2) The People’s Bank of China shall provide banks and insurance companies with credit references on borrowers and other relevant services, and establish a “blacklist” system formalicious defaulting debtors.
(3) Financial regulatory authorities shall guide and oversee banks and insurance companies inactively and steadily carrying out relevant tasks,fulfil their risk management duties, as well as timely conduct inspections of their operations.
(4) Finance authorities shall provide funding support for small policy-based loan surety insurance services and ensure that funds for related risk compensationare properly disbursed.
(5) Industry and commerce authorities shall, through the Enterprise Credit Information Public Disclosure System,publicly disclose the management of the industrial and commercial registration of enterprise borrowers and information on relevant administrative sanctions,assist in the supervision of enterprise borrowers who have committed breach of faith or legal violations, and restrict them from carrying out relevant industry and commerce transactions.
(5) Agriculture, science and technology, and industry and information technology authorities shall provide lists of qualifiedagricultural, tech and small/micro enterprisesfor the reference of banks and insurance companies, and assist banks and insurance companies in carrying out credit investigationswith regards to loan recipients.
(7) Public security authorities shall, in accordance with the law, crack down on loan fraud, willful evasion of financial debt obligations, and other related illegal acts, and safeguard the legitimate rights of banks and insurance companies.
Article 19 Applicants for insurance premium subsidies specified in these Measures may not apply for other similar insurance subsidies from municipal fiscal funds.Banks, insurance companies, and loan recipients that are eligible for relevant policies regarding loan interest subsidies issued by relevant municipal authorities or districts may continue to enjoy the benefits of these policies in accordance with regulations. Relevant municipal authorities and all district governments are encouraged to, inlight of actual conditions, provide further support for small policy-based surety insurance.
Article 20 These Measures shall come into force from the date of issuance for a period of 3 years.
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