A finance house to be known as China Small and Medium Enterprise Bank is expected to be set up with registered capital of about 20 billion yuan ($3.3 billion) in a move to explore innovation in loan products and risk-prevention mechanism for SMEs.

An application for its establishment is awaiting approval by the China Banking Regulatory Commission. The next stage involves it being officially reported to the State Council, Li Zibin, president of the China Association of Small and Medium Enterprises and the founder of the bank, said on Tuesday.

"Because the proportion of direct financing in China is still low, banks will continue to play an important role in backing enterprises," said Li. "But large commercial banks prefer large enterprises because of the risk and labor cost factors, so we are planning to establish a bank especially for SMEs."