CNFinance Holdings Ltd. (NYSE: CNF)

CNFinance Holdings Limited is a leading home equity loan service provider in China. The company operates by connecting micro- and small-enterprise (MSE) owners with financing needs to licensed financial institutions such as trust companies and commercial banks. It has established a national network of 37 branches and sub-branches in over 30 cities across China. CNFinance Holdings Limited facilitates home equity loans secured by first or second lien interests on real properties, with loan principals typically ranging from RMB100,000 to RMB5,000,000. The company provides tailored loan products including interest-only installment loans and principal-plus-interest installment loans, with tenors ranging from one to three years. It also offers bridge loans to help borrowers refinance existing property-secured debt. The business model emphasizes risk mitigation through strict loan-to-value (LTV) ratio controls, capped at 70%, and integrated online and offline credit assessment processes. Revenue is generated through service fees charged to trust company partners and commercial banks for loan facilitation, post-loan management, and credit strengthening services. Performance-based service fees from trust plans can reach up to 8% per annum of the trust plan size. Under the commercial bank partnership model, the company earns facilitation fees for introducing borrowers, conducting initial credit assessments, and providing technical assistance. The company does not act as the legal lender in commercial bank arrangements but earns fees for services rendered. Revenue also comes from incentive fees paid to sales partners under collaboration models, which are calculated based on loan principal amounts. The company operates through three primary business models: trust lending, commercial bank partnership, and direct lending. These models represent the company's operational segments, each with distinct funding mechanisms and service offerings.

• Trust Lending: This segment involves collaboration with trust companies to fund home equity loans through trust plans. CNFinance Holdings Limited acts as the service provider, responsible for borrower acquisition, credit assessment, loan facilitation, and post-loan management. The company subscribes to subordinated units in trust products and earns performance-based service fees up to 8% per annum of the trust plan size. It also retains residual value from trust plans after senior unit holder payments and financing costs. Key trust partners include FOTIC, COFCO Trust, Zhonghai Trust, Shaanxi International Trust, Bohai Trust, and National Trust. In 2023, 2024, and 2025, home equity loans facilitated under this model amounted to RMB12.2 billion, RMB8.6 billion, and RMB1.3 billion, respectively. The weighted average effective interest rate for trust lending loans was 16.9%, 16.6%, and 16.1% per annum during those years. The average loan tenor was 12, 12, and 10 months, respectively.

• Commercial Bank Partnership: This segment facilitates home equity loans in cooperation with commercial banks, where the banks review and approve loans while CNFinance Holdings Limited provides loan facilitation services. The company introduces borrowers, conducts initial credit assessments, provides technical assistance, and assists with post-loan management. It earns a service fee equal to a pre-agreed percentage of each loan facilitated. The commercial bank partnership model began in 2021, and in 2025, loan origination volume under this model was RMB130 million, representing 8.1% of total loan origination volume. The outstanding loan principal recorded at the end of 2025 under this model was RMB2.0 billion. Interest rates for loans under this model range from 7% to 16%, attracting borrowers with higher credit records. Sales partners play a key role in borrower acquisition, with 97.8% of borrowers introduced to commercial banks acquired through sales partners in 2025. The company provides back-to-back guarantees through guarantor companies to mitigate default risks.

• Direct Lending: This segment involves small loan subsidiaries in Beijing, Shenzhen, and Chongqing that lend directly to borrowers using company-owned or third-party funds under repurchase arrangements. These subsidiaries hold licenses to conduct small loan lending business. The direct lending model is described as a limited and immaterial part of the business due to regulatory financing and net capital ratio constraints. For the years ended December 31, 2023, 2024, and 2025, loan origination volume through direct lending was RMB56 million, RMB277 million, and RMB218 million, respectively. The balances of borrowings funded by third parties for this business were nil in all three years. Loans under this model are typically secured by real property and have terms similar to home equity loans facilitated under the trust lending model. The company expects direct lending to remain a small portion of its business in the near future.

CNFinance Holdings Limited holds a leading position in China's home equity loan service industry, particularly in serving MSE owners who are underserved by traditional financial institutions. The company differentiates itself by offering loans secured by second lien interests, which are typically not provided by large commercial banks in China due to regulatory constraints. Its competitive advantages include a standardized and integrated online and offline credit application process that shortens loan disbursement time, a nationwide network of branches and sales partners, and a risk management system that evaluates both borrower creditworthiness and collateral quality. The company maintains strict LTV ratio controls, with a weighted average LTV of 62.0%, 60.5%, and 60.0% for loans originated in 2023, 2024, and 2025, respectively. It also employs dual-factor risk assessment and effective post-loan management procedures, including debt collection and collateral monitoring. While facing competition from other home equity loan providers and traditional financial institutions, CNFinance Holdings Limited leverages its specialized focus on property-backed lending for MSE owners and its collaboration model with trust companies and banks to maintain its market position.

The company's primary customer base consists of micro- and small-enterprise (MSE) owners who own real properties in Tier 1 and Tier 2 cities and other major cities in China. These borrowers typically have quick cash flow turnover from business operations and high demand for working capital, with financing needs that are unpredictable, time-sensitive, and frequent. CNFinance Holdings Limited serves borrowers who are often unable to meet the stringent requirements of traditional financial institutions designed for large corporations. The company has originated home equity loans for 23,910, 12,912, and 2,688 borrowers in 2023, 2024, and 2025, respectively, including 211 borrowers under the commercial bank partnership model in 2025. Borrowers are geographically dispersed across over 30 cities in China, with collateral consisting of apartments, houses, and commercial properties. The company does not disclose specific customer names in the filing, relying instead on its network of sales partners and local channels to acquire borrowers. Sales partners are responsible for recommending MSE owners with financing needs, and over 95.0% of borrowers were introduced through this channel under the trust lending model in 2023, 2024, and 2025. Under the commercial bank partnership model, sales partners continue to play a significant role in borrower acquisition.