A night view of the Pearl River and Guangzhou's landmark Canton Tower in Guangzhou, Guangdong province. [Photo/Sipa] 

The financial supervisory authority in Guangzhou, the capital of Guangdong province, has introduced a risk compensation mechanism for loans from banks to small and micro-scale enterprises.

The introduction of the mechanism would help increase new loans of about 30 billion yuan ($4.28 billion) for local small and micro-scale businesses, according to the Guangzhou Local Financial Supervision and Administration Bureau.

"Financial supports would help small and micro enterprises to better recover their business, amid the global COVID-19 pandemic," said Qiu Yitong, director of the local financial supervisory authority.

The Guangzhou financial supervisory authority has signed agreements with 11 banking organizations to offer funds as compensation of up to 200 million yuan each year for bad loans from small enterprises.

Specifically, up to half of the credit loans, with each worth less than 10 million yuan ($1.4 million), will be compensated to banks if the loans are nonperforming, the authority said.

"The mechanism would help boost banking organizations' interests in providing loans to enterprises which are usually hard to gain for mortgage loans," said Qiu.

New loans for small and micro enterprises in Guangzhou topped 170.88 billion yuan in the first five months of the year, an increase of 108.46 billion yuan compared with the same period last year, Qiu said.

The risk compensation mechanism for bad loans will benefit about 15,000 to 20,000 local small and micro businesses, the financial supervisory authority said.

In Guangdong, a province where micro and small enterprises flourish, a financing platform for small and medium-sized enterprises was launched last year aimed at efficiently providing fundraising solutions for small businesses.

The platform has become an open financing ecological system based on integration of big data of company credits and financing solutions.

The platform has established a credit evaluation system for SMEs based on the local government's database of companies.

The Guangzhou branch of the People's Bank of China said loan balance for small and micro enterprises in Guangdong reached 1.81 trillion yuan in the first half of this year, an increase of 33.7 percent year-on-year.

Online banking organizations have also provided tailored lending services with lowered interest rates on loans for small businesses in Guangdong.

WeBank, China's first digital bank based in Shenzhen, Guangdong, has served more than 200 million individuals and more than 900,000 small and micro-scale enterprises since its establishment five years ago.

"We will lower the interest rate on loans for small and micro businesses, to help reduce financing burdens, especially amid the global economic downturn since the COVID-19 epidemic," said Wan Jun, chairman of the board of supervisors of WeBank, which is backed by tech giant Tencent.