Microfinance companies shall, in accordance with the relevant provisions of the Measures for the Administration of Provisions for Financial Enterprises (Jin Cai [2012] No.20), draw general (risk) reserves at the end of each year according to the balance of 1.5% of risk assets to make up for unconfirmed potential losses.

Small loan companies should establish a complete risk provision system and make provision for loan losses before tax on a quarterly basis. Loan loss reserve includes general loan loss reserve, special loan loss reserve and special loan loss reserve. The provision ratio for loan losses is not less than 1% of the loan balance. The special provision for loan losses should be based on the principle of five-level classification and accrued according to the following proportions: for loans of concern, the accrual ratio is 2%; For subprime loans, the provision ratio is 25%; For doubtful loans, the provision ratio is 50%; For loss loans, the provision rate is 100%. Among them, the loss reserve for subprime and doubtful loans can fluctuate by 20%. The proportion of special provision for loan losses shall be determined by the microfinance company itself. The loan loss reserve shall be managed by special account, which can only be used to write off bad debts and shall not be used for daily operations. Small loan companies should fully estimate the risk of loan loss, and dynamically adjust the loan loss reserve according to the risk situation, so that the provision coverage ratio (the ratio of the sum of loan loss reserves to the balance of non-performing loans) is higher than 150%.