Peer-to peer lending platforms in China have seen their numbers drop in recent months. Some went bankrupt while a few choose to shutter their operations due to growing distrust among consumers.
Reports of fraudulent operators running away with huge sums of investor money have tarnished the reputation of the online lending industry.
Earlier this year, police busted Ezubao and arrested more than 20 people after the P2P lender is said to have engaged in a scam that took in as much as 50 billion yuan from 900,000 investors.
“When Ezubao’s case was exposed, we were under a lot of pressure,” a Beijing P2P operator surnamed Tian told the Hong Kong Economic Journal.
Tian’s customers were worried whether his operation was also just a Ponzi scheme.
“We could only say we are different. And explain that a proper P2P operation isn’t run like Ezubao,” Tian says.
Lack of rules on minimum capital requirement, and regulatory oversight, gave rise to a large number of shady operators who used P2P lending as a gimmick to cheat investors.
For instance, borrowers shown on some dubious websites do not exist at all.
The industry’s bad reputation has meant that even the genuine players are now confronting skepticism from the public.
“We are not doing any promotion now. It would be useless because the public simply don’t trust the P2P industry,” Tian said.
The government is said to be drafting a set of rules to clean up the industry. But it might be too little, too late.
As long as there is no stringent capital requirement, a key fundamental weakness will not be addressed, some P2P professionals say.
“No officials are willing to play the watchdog role,” an industry expert complains.
“There are thousands of players, most of them rather small. How can authorities effectively oversee such a large number of P2P platforms?”
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