P2P sites are clicking with borrowers

Online financing industry gets more support from investors, reports Zheng Yangpeng.

China's peer-to-peer lending platforms have emerged quickly. Unfortunately, so have the risks associated with such enterprises. Media reports have told of bosses of P2P firms disappearing after the lenders failed to give investors promised returns.

But industry insiders said these news, though exposing hidden risks for China's burgeoning investors, many lack basic financial risk literacy, understate the huge opportunities and progress the sector has brought to the nation's often bloated financial service industry.

Along with ever-evolving Internet finance offerings, P2P firms have brought investment options, once out of reach for the average Chinese, to investors who may have only a few hundred yuan to spend. It is akin to a financial Enlightenment, some said, a development that promises to push forward China's financial democratization.

What is more, though still small compared to the financial might of China's banks, the sector has challenged the dominance of the status quo, be it financial institutions, securities firms or insurers, experts said.

For the first time, ordinary Chinese know that they have somewhere to turn other than to banks when they have borrowing or lending needs.

The change is taking place at a dazzling pace. In 2012, there were only 110 P2P lending firms in China. By the end of 2013, the number had soared to about 700. And by the end of July this year, it surged to around 1,200, according to the China Banking Regulatory Commission.

How fast is that? It means 1.62 firms were born in China every day in 2013 and 2.38 per day this year.

In addition, some 190,000 people have borrowed through P2P websites, which attracted an estimated 440,000 investors, according to Rong360, an online loan product searching engine.

When so many people involved, the stakes are growing. But what has been underestimated is how much the massive influx of new players has driven up competition, with entrepreneurs having to innovate in order to overcome "distrust", a key obstacle to the industry's development.

Take Hexindai, a Beijing-based P2P firm launched in August 2013, for instance. Within one year, total turnover on the platform had reached 1.27 billion yuan ($207.5 million) and outstanding loans exceeded 300 million yuan. A reason for its success: Its operators have devised various ways to guarantee investors' interests.

First, unlike many other firms, Hexindai provides only asset-backed borrowing, with homes making up the bulk of the collateral. Shi Han, the company's general manager, said most of the borrowers are businesspeople with short-term financing needs. If they fail to fully repay their loans, their assets can be sold for repayment.

Shi, who previously worked for a large, collateral-free P2P, said: "Many P2P firms now offer loans without a collateral requirement. Although they have their own credit assessment methods, I feel that Chinese people still trust our model more."

The company also signed cooperation deals with third parties to accredit its electronic lending contracts and facilitate online payment.