The People’s Bank of China (PBOC), the central bank of China, has announced plans to legalize private lending and remove a cap on interest rates charged by microfinance institutions (MFIs). Interest rates for MFIs are currently capped at four times the prime lending rate, which stands at 5.31 percent.

According to an article on the Dow Jones website, the rule was put in place in 1995 to protect poorer people living under an immature social security system. Mr Zhou Xuedong, Director General of PBOC’s Law and Regulation Department, commented that the situation has since improved, so a rule change would be appropriate.

By: Stefanie Rubin, Research Associate

Additional Resources:

Dow Jones: “China Plans Legalising Private Lending,” http://www.todayonline.com/Business/EDC100226-0000134/China-plans-legalising-private-lending