China will impose tighter regulations on online small lending offered by microloan companies to prevent risks, ensure legitimate interests of customers, and promote the healthy development of such business.

The China Banking and Insurance Regulatory Commission, along with the People's Bank of China, the central bank, said it has started seeking public opinion on the interim measures for the administration of online small lending on Nov 2.

Regulators aim to standardize online small lending, as microloan companies grew this type of business too fast in recent years, said Dong Ximiao, chief analyst at the Zhongguancun Internet Finance Institute.

Currently, 249 microloan companies are authorized to run online small lending business in China. About 97 of them are registered in Guangdong province and the municipality of Chongqing.

"Many microloan companies expanded online small lending quickly all over China, breaking regulatory restrictions that prevent them from doing business across provinces," Dong said.

"These companies sought sources of funding through measures including issuing asset-backed securities, which has sharply increased their financial leverage ratios. Some internet companies, in particular, entered the field of small lending barbarously, adopted an extensive model of management, infringed on consumer rights, and might adversely affect financial stability," Dong said.

For a microloan company that runs online small lending business, its balance of financing through issuance of standard credit assets including bonds and asset-backed securities should not exceed four times its net assets, according to the draft interim measures for comments.

The balance of online small loans issued to an individual should not exceed 300,000 yuan ($44,836) and also cannot surpass one-third of his or her average annual income in the last three years.

"This requirement will significantly affect microloan companies' client base, as borrowers without stable incomes or certificate of income may not receive online small loans from these lenders," said Zeng Gang, deputy director-general of the National Institution for Finance and Development.

The draft rules also require microloan companies to provide at least 30 percent of loan funds for each online small loan they offer jointly with commercial banks. This will force microloan companies to cut down their financial leverage, experts said.

"Bringing online small lending in the existing regulatory frameworks for banks and consumer finance companies will promote sustainable and sound development of financial consumption by preventing microloan companies from encouraging consumers to spend and borrow too much," Zeng said.