China’s peer-to-peer (P2P) lending industry was once the wild east of financing. Borrowers went unvetted, some sites raised money for themselves and frauds ran off with investors’ cash.
As many as 119 P2P lending firms are thought to have absconded in the past few years, siphoning off about 2.1 billion yuan (US$336 million) in total.
But now the industry is being brought into regulatory line so that it can prosper in a more sustainable way.
Baidu got the ball rolling last month by temporarily removing most of the P2P firms that use the search engine as a promotional channel.
That decision was induced by the vanishing act of Wangwangdai. The P2P firm disappeared with money from investors, many of whom reportedly found the company through a Baidu search.
Baidu said it has delisted more than 1,000 P2P firms and it’s working with the government, insurance companies, and payment and clearing associations to draw up rules for the industry.
“We have ‘white-listed’ the first batch of P2P firms that meet the criteria,” National Business Daily quoted Baidu saying.
According to Baidu, firms can make it onto the list by joining the Internet Finance Committee under the Payment and Clearing Association of China. The P2P platforms or their third-party guarantee agencies should be overseen by either a provincial government, a state-owned bank, a brokerage or an insurance company.
In the meantime, the State Council has given the go-ahead for an industry self-regulator called the Internet Finance Association, which the People’s Bank of China will oversee directly.
The committee now has 75 members, including 10 from P2P lending firms seen as industry role models. Among them are Renrendai, Lujinsuo under Pingan Insurance, CreditEase, PPdai and Hong Ling Capital.
P2P lending became popular in the low-interest-rate era as investors were drawn to typical returns of more than 10 percent a year. The sector still has potential if participants and regulators can make it a safer place for spare cash to plug liquidity gaps.
Among P2P players, those that can improve their transparency and compliance are more likely to grow faster. Renrendai and CreditEase, for example, are moving in that direction.
Both companies are revealing more information about the projects, like the sex, age, educational background, occupation, income level and marital status of the borrowers. Lenders can use the data to assess borrowing risk.
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