A finance house to be known as China Small and Medium Enterprise Bank is expected to be set up with registered capital of about 20 billion yuan ($3.3 billion) in a move to explore innovation in loan products and risk-prevention mechanism for SMEs.

An application for its establishment is awaiting approval by the China Banking Regulatory Commission. The next stage involves it being officially reported to the State Council, Li Zibin, president of the China Association of Small and Medium Enterprises and the founder of the bank, said on Tuesday.

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"Because the proportion of direct financing in China is still low, banks will continue to play an important role in backing enterprises," said Li. "But large commercial banks prefer large enterprises because of the risk and labor cost factors, so we are planning to establish a bank especially for SMEs."

Li said it will offer innovative loan products and new risk-prevention mechanisms to meet the financing requirements of SMEs.

For instance, receivables from large enterprises cannot be regarded as a mortgage by SMEs when applying for loans from existing commercial banks. China Small and Medium Enterprise Bank may allow them to count.

Deloitte is participating in the risk-evaluation report.

The bank plans to start businesses across China but detailed locations will be released later.

Direct financing of SMEs constitutes a proportion of less than 5 percent. Meanwhile fundraising from the capital market and private equity and venture capital investors is difficult, said Li.

SMEs account for 80 percent of jobs in China, half of all tax revenues and 60 percent of the nation's gross domestic product. Nonetheless they face grave difficulties in financing, said Tian Chuan, an official at the Ministry of Industry and Information Technology.

The Second China SME Investment & Financing Expo will be held in Beijing between July 7 and July 9 this year.