Entrusted Loan

AAA

DEFINITION of 'Entrusted Loan'

A loan organized by an agent bank between borrowers and lenders. In an entrusted loan the agent bank is considered the trustee and the company providing the funds is considered the trustor. The trustee is responsible for the collection of principal and any interest, for which it charges a handling fee, but does not undertake any of the loan risk.

INVESTOPEDIA EXPLAINS 'Entrusted Loan'

Entrusted loans are commonly found in China, which restricts direct borrowing and lending between commercial enterprises. The loans offer companies with idle funds the chance to earn interest by allowing the agent bank to loan the funds out, while still letting the companies choose whom the agent bank lends the funds to. The People’s Bank of China, China’s central bank, has allowed entrusted loans since 2001.

While the introduction of entrusted loans has allowed companies operating in China to improve their liquidity, their use is not as transparent as many loans made in developed countries. Entrusted loans are kept off bank balance sheets because agent banks do not assume any credit risk, which can hide the risks banks face if lenders are unable to pay. This lack of transparency also makes it more difficult to judge whether the economy is overheated or over-leveraged, or if the quality of companies obtaining credit is declining. 

RELATED TERMS
  1. Revolving Loan Facility

    A financial institution that allows the borrower to obtain a ...
  2. Recourse Loan

    A type of loan that allows a lender to seek financial damages ...
  3. Brazil, Russia, India, China And ...

    An acronym for the combined economies of Brazil, Russia, India, ...
  4. Tandem Loan

    Two loans taken out on one asset, which is usually a house; the ...
  5. Loan Lock

    The securing of a specified interest rate on a mortgage that ...
  6. Self-Liquidating Loan

    A type of short- or intermediate-term credit that is repaid with ...
Related Articles
  1. Investing Basics

    Investing In China

    Investment opportunity is huge in China. However, investors should consider the pitfalls, understand the risks and rewards, focus on shareholder-friendly companies and stick to investments they ...
  2. Investing Basics

    How Banks Set Interest Rates On Your Loans

    On the face of it, figuring out how a bank makes money is a pretty straightforward affair. A bank earns a spread on the money it lends out from the money it takes in as a deposit. The net interest ...
  3. Credit & Loans

    5 Tips For Getting Your Bank Loan Approved

    Find out how to present the perfect, complete package for your lender and increase your chances of gettinga loan approved.
  4. Credit & Loans

    Can't Get A Bank Loan? Turn To Your Neighbor

    Peer-to-peer lending can be an inexpensive way to gain access to credit when banks are restricting lending -- but you need to understand the entire deal first before jumping in.
  5. Personal Finance

    Introduction To The Chinese Banking System

    As China steps into a greater role in the global economic system, their banking system continues to evolve.
  6. Entrepreneurship

    Top 6 Factors That Drive Investment In China

    FDI in China surpassed $100 billion in 2010, certain key factors drive foreign direct investment.
  7. Investing Basics

    Hong Kong Vs. China: Understand The Differences

    The century-long separation between mainland China and Hong Kong created political and economic gaps which cannot be easily bridged even if the two are officially one country.
  8. Economics

    Profiting From China's Breakout: The Right Funds

    China's prospects for growth, and for rewarding investments, can't be debated. Here are some worthwhile funds to invest in, and the smart way of doing it.
  9. Savings

    What US banks offer the best savings accounts?

    Explore the best savings accounts offered by national banks comparing annual yield and other factors. Learn why the highest-yield accounts are offered online.
  10. Savings

    What Canadian banks offer the best savings accounts?

    Learn about different savings accounts in Canada. Explore different interest rates and fees as well as accounts that are protected by the CDIC.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center