Controlling default risks

Duan Nan from the Baoshang Bank said the economic slowdown has had a larger effect on small and micro companies and the bad-loan rate for her bank is at two percent. The rate for Minsheng is 0.3 percent.

Setting the interest high enough to cover all risks has become a common option.

Baoshang sets its interest rate at 18 percent, while Mingsheng has set theirs at 15 to 16 percent.

Bai explained that small and micro businesses worry more about whether and when they can get the loan than how much the loan actually costs. Duan said Baoshang has the capability to issue a loan under 1 million yuan within three days.

In addition to high interest rates, Minsheng tries to extend as many loans as possible while making the credit line for each loan as small as possible, thus following the Law of Large Numbers in statistics, Bai said.

"If the bank extends a loan bigger than necessary, the micro company will transfer the amount of money to other areas such as real estate rather than their core business area. The average SME loan value has decreased from 1.8 million to 800,000 and may reach 500,000 later," Bai said.

Longjiang Bank's Hu Lan said it is during the beginning stages of the credit officer and micro company contact that is the best time for controlling risks.