IN BEIJING

THE nameless Chinese underground lender had a spiky red hairdo, fierce hairy eyebrows, ruddy cheeks and a toga-like uniform.

He bobbed up and down as I asked questions tentatively, and even made one smiley face when answering me: The "seasonal" interest rate for a 10,000 yuan loan was 12 per cent for three months.

To get my loan application started, I must submit copies of my residency permit (a "hu kou"), identification card and two passport photos.

My first encounter with a representative of an underground bank was on China's popular instant messaging platform QQ.com.

Needless to say, trying to borrow money from a hyperactive cartoon icon which made faces at me on QQ was a surreal experience.

I was in Beijing, and he was in some other part of mainland China, and the only reason I was able to connect online with "Dai Kuan" (which means "loans" in Chinese) was because he had posted his QQ user ID in an online forum ad offering cheap loans to individuals.

What struck me as I was gathering information for my article about underground banks in China was the secrecy and sheer scale of this industry.

Platforms like QQ, online forums and mass SMS advertisements offer the anonymity and the widepsread reach that the tens of thousands of underground banks across China favour.

Some analysts have estimated that the grey banking sector contributes as much as 15 per cent of total bank lending in China.

Underground banks range from sophisticated syndicates of lenders who provide project financing and even foreign exchange transactions for big clients including listed companies and state-owned enterprises, to huddles of family members or friends who pool spare cash to loan out to their contacts, to loansharks with officiously designed corporate websites.

These grey market lenders do not have a license to make loans or take deposits. But they have thrived for decades in China by filling the credit gap left by rigid state-owned banks who may turn away private sector enterprises and individuals because the latter lack a credit history.

Some borrowers also find the loan application process at a state bank too cumbersome.

Nimble and enterprising grey market banks, on the other hand, are said to be more flexible: Manager Liu of Guangzhou XY Company Ltd, for instance, offered a 2000 yuan discount on the interest payment for a 50,000 yuan loan paid up within a year when asked for better terms.

Underground banks are also known to have quick response times - some advertise "one working day" approval for loan applications.

But a prompt response does not mean that they are forthcoming in giving full information.

Take Manager Zhao of JX Loan and Financing Group, who claimed to be located in Beijing despite having a mobile number registered in a different province.

Only after some probing did he reveal that an approved loan of 50,000 yuan for one year actually yields only 45,000 yuan - the interest payment of 10 per cent is deducted upfront.

If the borrower defaults on payment? "We will sue you in court," he said.

Somehow, that threat did not carry much weight for me.

But news stories abound about the strong-arm tactics by other underground banks that do strike fear into the hearts of hapless borrowers: death threats, vandalising property, using connections with provincial officials to create trouble, in order to extort loan payments from borrowers.

The government has been clamping down on illegal lenders. Nonetheless, these grey market shops still appear to be going strong, operating beneath the radar by using anonymous online personas and frequently changed mobile numbers to communicate with their clientele.

When I went on QQ the following day to look for "Dai Kuan" hoping to get a formal media interview, I found that the account had been deleted.

But who knows, perhaps he may surface somewhere else on QQ as a blonde bombshell with pink leggings.