SHANGHAI, April 15 -- Racked by scandal, high-profile collapses and high-profile company exits, the world’s largest peer-to-peer lending market could soon face a second reckoning, as Beijing prepares to adopt stricter licensing requirements.
China’s peer-to-peer (P2P) industry, much like payday lenders in the United States, has provided a valuable lifeline for some of the country’s most vulnerable consumers and small businesses that have had trouble accessing the traditional banking system, although it only accounts for a small portion of total borrowing in the country. The internet-based lending platforms match private investors – who have money they are willing to lend – with individuals or small companies that want to borrow, with the platforms taking a small cut of each transaction. Investors can make up to 10 per cent annual returns on their lending through the platforms. The number of P2P platforms shrank dramatically last year amid tightening regulation to arrest an epidemic of fraud and weakening investor sentiment fuelled by massive defaults. For the lending platforms that remain, the country will start a trial registration process in pilot cities during the second half of this year, according to Economic Information Daily, a state-run newspaper.
The programme will clarify the registration threshold and business boundaries for the remaining P2P services, categorising them into national and regional platforms, and require all of them to set aside general risk reserves and loan loss provision for lenders on the platforms.
“Cleaning up and exiting will be the theme [of the registration programme],” Xue Hongyan, director of the internet finance research centre at the Suning Institute of Finance, wrote in a note. “Nearly 90 per cent of all remaining platforms will not qualify for a license.”
Xue suggested that only about 100 platforms would survive under the new regulatory environment, out of the 1,021 P2P lending platforms still operating at the end of March. That number has fallen by about half from a year ago due to business failures and pressures from government regulators,