China Focus: Default risk rises in China's P2P lending
TIANJIN, Nov 04, 2013 (Xinhua via COMTEX) --
A small peer-to-peer (P2P) lending
website based in central China's Hubei province, xgtld.com, which had
been open for only five months, has collapsed after media reports
suggest the company's founder allegedly took off with the money last
Currently, the web portal claiming to be the most secure P2P
lending platform in China is still available, but it has not posted
any updates since October 15.
Online P2P lending websites are thriving in China, but loan
defaults are becoming a big concern for investors as P2P lending
companies are not presently regulated by any Chinese financial
Xu Hongwei, CEO of China's Internet financial services web portal
Wangdaizhijia.com, says as of today eight to nine online P2P lending
platforms have been bankrupted or have defaulted on loans since the
start of October.
P2P lending, or social lending, is the practice of lending money
to unrelated individuals without a traditional financial intermediary
such as a bank. Borrowers and lenders register on the online P2P
lending platforms and seek matching partners. The platforms charge
commission fees for every transaction.
Since 2007 P2P lending websites have grow from nothing to become
very popular among middle-class Chinese. Transaction value on these
websites surged to more than 20 billion yuan last year from only 20
million yuan six years ago.
"We predict that deals worth as much as 100 billion yuan will be
processed on China's online P2P lending websites this year", says Xu
Wan Guohua, a law professor at the Nankai University, says P2P
lending websites have made it easier for small businesses to borrow
money, as small firms often find it hard to receive financing from
P2P lending services have taken root in China mainly because the
interest rates they offer are much higher than banking deposit yield.
According to analysts, the annual return rate offered on P2P lending
websites averages between 15 and 20 percent, compared with 3 percent
for the benchmark rate for one-year fixed deposits.
More Chinese investors are beginning to trust online P2P companies
and are pouring money into them as the websites usually guarantee to
make up for losses using their own capital if loans default.
Xue Kepeng from the China University of Political Science and Law
says China currently does not impose a fairly high access threshold
for Internet P2P lending firms. Individuals who spend thousands of
yuan on registering e-commerce consulting enterprises could easily
begin to offer P2P lending services.
Experts warn of an urgent need for regulatory authorities to
introduce regulations on the sector to limit further bankruptcies or
shut-downs in P2P lending. They say rules are needed to protect the
interests of investors. (Edited by Ding Lei, firstname.lastname@example.org)
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