China ‘cracks down’ on corrupt P2P lenders
Plans unveiled to transform online operators into small loan companies
Peer-to-peer lenders in China are to be converted into small-loan companies in a bid to de-risk online lending.
P2P lending is in crisis in China. According to figures released by the China Banking and Insurance Regulatory Commission more than 1,200 P2P businesses have closed since the start of 2019. In addition, loan balances were down 48 per cent, lenders had fallen by 53 per cent, and borrowers had dropped by 35 per cent.
It was once booming industry, with P2P platforms loaning $61.5 billion in 2016, against a total $1.78 trillion in loans made by commercial banks, according to data from the Central Bank.
Similar to payday lenders in the US, P2P lending has provided a lifeline for consumers and small businesses who are unable to access China’s traditional banking system.
But after years of fraud and defaults, China's financial regulators imposed strict rules on the industry. Vice-chairman Zhu Shumin spoke at a recent news conference explaining the need to “crack down on online lending institutions that seriously break the law and regulations”.
By the end of September, 786 cases were filed and investigated across China.
As a result, Shumin said they are working with the people's Bank of China to “study and formulate specific plans for the transformation of P2P online lending institutions to small loan companies”.
This means online lending will face stricter regulation in the hope that “fewer and fewer people blindly pursue high returns on internet finance”.
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