China’s financial regulators have drafted rules that clamp down on a booming microlending market in the world’s second-largest economy, a move that could curb the profits of the country’s fintech giants and stem the flow of funds to small businesses. The draft rules could dam liquidity flowing to parts of the economy that need it the most. China is recovering from the economic pain inflicted by coronavirus-related lockdowns this year, but small business owners and individuals are still struggling to obtain loans from traditional banks.

While regulators are seeking to reduce debt in the financial system, the draft rules could also crimp microlenders’ profits by piling on compliance costs, slashing the size of individual loans and requiring online platforms to contribute a larger share of loans instead of relying on traditional lenders’ balance sheets.

Yi Gang, the PBOC’s governor, said during a panel discussion at a Hong Kong financial technology summit on Monday that innovation by Big Tech companies had made microloans possible in China’s hinterlands. “That is a tremendous improvement,” he said. Yi also said that the PBOC had noticed commercial banks were using Big Tech companies’ services to find customers and depended on them for risk management.