Not satisfied with rating personal credit, Ant Financial moves into SME credit rating and reporting

Written by Felix Yang || July 25 2016

Assessing SME (Small and Medium Enterprise) credit has always been a difficult problem for banks and other financial institutions because lack of credit rating and reporting platforms. Last week, Sesame Credit announced the launch of their own credit checking and rating system for SMEs. They named it “Ling’Zhi” - which means “smart sesame” in Chinese. This new system may be the start of solving the SME credit issue and open up new funding channels to SMEs themselves.

SesameCreditBacked by Alibaba, the biggest e-commerce giant in China, data collection is a key part of the Smart Sesame platform. By using data from the Tmall, Taobao and Alipay platforms built by Alibaba, Sesame can capture data on production, distribution, and sales for a large number of SMEs which can then be analyzed to assess credit-worthiness. At the moment, Ling’Zhi provides services in 5 areas: Credit Reporting, Risk Analysis, Credit Indexing, ‘Attention List’ and Risk Alarm. The services seem to be fairly sophisticated. For instance, the risk analysis service can even identify if a company had changed its name or set up a new entity, Ling’Zhi can recognize it from the shareholders and other related transactions.

Sesame also connects to several external parties and government bodies including regulators and associations related to Industry & Commerce, Justice, Customs, Tax, etc.. From all of the connections and data, Ling’Zhi can build a whole picture of target SMEs, and at the same time, update the related external parties if there is new information available.

Sesame’s clients will include financial institutions, enterprises and government institutions. As the first step, Ling’Zhi will be tested by several local banks and then it may take another half a year or year to gain acceptance by the broader market.

There is room for improvement in the future. Right now, Sesame’s credit rating is regional, so only relates to an individual part of a company. So for example, if there is a company XYZ with multiple branches across China and someone checks the Shandong branch of XYZ, which appears to be doing well, that may not reflect the fact that the Sichuan branch of XYZ is failing.

Regulation in this space is also a concern. Besides Sesame, there are 135 other credit reporting companies sanctioned by the government, but there is still lack of detailed rules about how to ensure data security and address competitive aspects of the market. For example, who can check these records and to with level could the data be published? The similar issue happened in credit checking for individuals. In early 2015, 8 companies including Sesame were encouraged by the PBOC (People’s Bank of China) to develop credit checking system for individuals, but the actual licensing is on hold.

Accurate credit assessment and reporting has been a challenge for the government. We see the move to allow 3rd parties to enter the market as a positive one, but with mixed results. Currently the ‘retail’ version of sesame credit allows simple assessments for ‘low-value transaction’ credit decisions for Chinese consumers. SME credit reporting and assessment is even more critical for China as lending tends to be focused on the ‘too big to fail’ state-owned enterprises rather than the SMEs. If Smart Sesame is able to accurately assess SME creditworthiness, it could greatly increase the access to capital for smaller firms. The question then becomes, would it make a difference? Most banks seem to be happy lending to only large firms, would they switch?

This may not actually matter. Ant Financial has shown that they are completely willing to work with SMEs even if the other banks are not. Essentially Smart Sesame might just increase their client base as well as profits from the less competitive SME lending market.