The number of peer-to-peer lenders in China is projected to decline greatly to around 50 from more than 1,500 during the course of the next year.
Several other industry executives told the Financial Times that the new regulations will push most of the companies out of the market. The shakeout in China’s $192 billion peer-to-peer lending industry is accelerating at a rapid clip.
The peer-to-peer lending industry in China has been facing a regulatory crackdown after years of light oversight.
As part of the reforms, the executives of peer-to-peer lenders would be prevented from leaving the country when the business goes under. In recent month’s investors, many regular Chinese citizens, have taken to the streets to hold protests about their losses on these platforms and executives have been barred from leaving the country.
Authorities are focused on weeding out bad actors in the P2P industry, one of the riskiest and least-regulated parts of China’s $10 trillion shadow-banking system, according to Chen Shujin, the chief financial analyst at Huatai Securities Co in Hong Kong.
“The industry might enter a great recession,” said Zhang Guodong, secretary-general of the Shenzhen Internet Financial Association, an industry body formed by financial technology companies. “Everyone is very nervous now.”
Lufax China’s leading peer-to-peer lending and wealth management platform is transferring its entire peer-to-peer (P2P) lending portfolio worth “tens of billions US dollars” onto the blockchain platform, according to a post on South China Morning Post.
Lufax has hinted its working on integrating distributed ledger technology (DLT) into its operations to reduce cost and increase transparency.
The CEO of Lufax Greg Gibb reportedly made it clear that at a time when transparency has become a significant challenge for the P2P lending industry, coupled with severe regulatory crackdown on the sector, interested market participants can tap into blockchain technology to improve transparency and drastically cut down costs.
Peer-to-peer lending in the US, by firms such as Prosper Marketplace Inc and Lending Club Corp, is but a drop in the American investment ocean. In China, it has attracted 50 million savers — more than the populations of New York State and Texas combined — who have sought returns of 10 per cent or more, double what they can get from a bank. The total investment amount outstanding soared to a record $200 billion in June.
In a report by Transparency Market Research, the global peer-to-peer lending market is anticipated to witness a significant growth with owing to the increasing number of borrowers who seek funds for various personal purposes.
Advancement in technology is allowing users to have an easy access to various interfaces offering quick updating, thus boosting the demand for a peer-to-peer lending market.
Over the past five years, the Peer-to-Peer Lending Platforms industry has grown by 51.3 per cent to reach revenue of $3bn in 2018. In the same timeframe, the number of businesses has grown by 46.6 per cent and the number of employees has grown by 43.2 per cent.
Perhaps the most recognisable P2P platform, Lending Club has facilitated more than $38 billion in loans as of August 2018. Available to investors in 39 states, it allows for personal loans of up to $40,000.
Prosper company claims to be the first P2P lending platform and has facilitated borrowing for more than 800,000 people. Borrowers can get loans of between $2,000 and $40,000, and lenders can get started with as little as $25.
According to data from the UAE Khalifa Fund, approximately 50-70 per cent of SMEs applications for funding are declined by traditional banks. Loans to SMEs account for less than 4 per cent of the outstanding bank credit in the UAE, below the Middle East and North Africa region average of 9.3 per cent.
Lenders are sometimes unwilling or unable to serve SMEs given their limited assets or lack of proven record of company operations. Yet, in the UAE, some 350,000 companies fall under the SME category.
Peer-to-peer lending and crowdfunding activities are new concepts which are currently applied on a narrow basis and yet to be regulated and introduced at a wider level. The introduction of the regulation was intended to licence, organise and protect the rights and obligations of all parties involved in specific crowdfunding activities in the UAE.
Beehive is the Dubai-based peer-to-peer lending platform. The platform helps in financing transactions within a community of more than 7,000 investors and startups and entrepreneurs seeking funding. Beehive has facilitated funding of almost AED 250 million and has supported more than 300 businesses funding requests. The company works with Islamic legal advisers and Islamic finance industry experts to guarantee that all investments are Sharia-compliant. All businesses applying for finance are meticulously checked to ensure that the business activity and use of funds comply with Sharia principles.
Stefano Virgilli
stefano@virgilli.com
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