There is fundamental difference between private lending and loan-sharking, and we need to distinguish it.

Unlike loan-sharking, where people exploit need and profit from the exorbitant interest on a loan, private lending, universal and growing stronger in China, seeks to merely make a reasonable return on money that once loaned is no longer available to the lender.

Loans with loan-sharking rates of interests are a criminal act. Private loans seeking a reasonable rate of return are a form of investment.

The financial industry has long been earmarked as a State-owned field with stringent entry restrictions. Private capitals' presence and operations on this turf have been quite limited up until recently.

But with the majority of medium and small-sized companies ineligible for bank loans, private lending has been booming to meet their demand for loans to fund their expansion.

The central bank and the State Council have called for the recognition of private lending's importance to the economy and regard it as a useful and necessary supplement to formal finance.

The Supreme People's Court issued a notice on Feb 19 requiring courts at all levels to try any private lending cases that may arise prudently, so as to safeguard legal and orderly private lending relations.

But these positive signals are not enough to bring order to the private lending sector.

Rooting out loan sharks is essential if the sector is to operate effectively.

The government should take concrete actions to standardize this rapidly expanding marketplace with a comprehensive set of far-sighted regulations.

Any delay in standardizing the private lending market will be detrimental to the sound development of medium and small-sized businesses, which are the main source of new jobs.

Establishing an orderly and efficient private lending sector will not only be a milestone in advancing the modernization of the financial market, it will also be a big boost to China's economy.

(China Daily 02/24/2012 page8)