Shares of online micro-loan lenders plunged on Wednesday after the People's Bank of China decided on Tuesday to stop issuing licences for new online micro-loan lending services.
Share of Nasdaq-listed Qudian QD lost 3.83 percent to .31 on Tuesday, while China Commercial Credit Inc fell 8.8 percent to .27. Shares of the New York Stock Exchange-listed PPDAI Group plunged 14 percent to .8 on the same day.
The notice, marked as "urgent" and issued by a specific team for regulating internet-based lending from the country's central bank, said that no local regulators should approve any more applications for setting up new online micro-loan lending services.
Shandong province's financial regulator said it had received the notice on Wednesday.
Financial regulations for online micro-loan lenders are very "strict" and there have been several crackdowns on illegal moves in the sector, the regulator said.
Internet-based small loan companies cater to the lending requirements of people who have been turned down by banks, or people who have no credit record such as low-income or zero-income groups, including college students and young people who have just started working.
Most of the lending is defined as "consumer lending" or payday loans, which means when cash is given to the borrower, it is spent on buying things such as mobile phones, laptops, vacations, or plastic surgery.
Consumer lending more than tripled in 2016 to some 0 billion in China, according to a recent report from the Cambridge Centre for Alternative Finance, a Reuters report said.
Experts said that tighter scrutiny of the sector was expected due to rising concerns about bad loans and compliance risks.
"Companies offering internet-based micro loans are facing risk management challenges from fraud and excessive lending. Absence of real data, including the basic information of borrowers, and the eagerness to scale up rather than launch the right products would hinder the development of the sector", said Ji Shaofeng, head of Nanjing-based Jiangsu Wufeng Information Technology Ltd.
Li Zhongyuan, a business development manager with Shanghai-based Zhongda Lending Ltd, said that growth in the sector has been "too fast for risk management to catch up".
It is obvious that the regulators would not tolerate wild or unruly growth in the sector, said Li.