China may legalize so-called underground banks in an attempt to help companies that have seen credit dry up recently, AFP reported. Under a regulation drafted by the central bank, companies and individuals will be allowed to extend loans if they do not have bad credit or criminal records, according to the Beijing Times. However, these unofficial banks will not be allowed to accept deposits, and their lending rate must be within four times the government-set benchmark interest rate of 6.66%. Unofficial lending helps small businesses and farmers that cannot qualify for loans from state-owned banks. Unofficial bank loan rates average 12-15%, but have reached as high as 300%.
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