China’s P2P Lending Sector Is Coming to an Endby Fintech News Hong Kong December 3, 2019
Every peer-to-peer (P2P) lending platforms in China must become small loan providers within two years, according to an official notice issued by China’s Internet Financial Risk Special Rectification Work Leadership Team Office.
It also states that all outstanding loans must be cleared within the next year, though the grace period can be extended by up to two years for firms managing more than 5 billion yuan (US$710 million) in outstanding longer-maturity loans.
The notice, seen by Reuters last week, details a transition plan that began at the end of November aimed at curbing China’s P2P lending industry. The goal, it says, is “to resolve risks contained in the existing business of online lenders” and “reduce the loss of creditors, maintain social stability and prompt orderly development of inclusive finance.”
According to the notice, P2P lending firms looking to become regional small loan companies are required to meet a capital requirement of at least 50 million yuan (US$7.1 million). To operate nationally, P2P lending companies need to meet a capital requirement of no less than 1 billion yuan (US$142 million). P2P lenders must also keep their leverage ratio below 5, reports Caixin.
Meanwhile, fraudulent platforms and firms showcasing serious credit risks will be banned from making the transition and forced to close, the notice says.
China’s crackdown on P2P lending
Nearly four years ago, the Chinese government began its crackdown on P2P lending, an industry that has been plagued by fraud and misconducts, ranging from Ponzi schemes and absent bosses, to P2P lending platforms hiring debt collectors that used intimidation and harassment to collect debts.
Since early 2016, more than 2,000 P2P lending platforms have closed down. Only 427 P2P lending platforms were still operating by the end of October 2019, down from the 2015 peak of 6,000, according to Reuters. Outstanding loans fell from 1.3 trillion yuan (US$184 million) in late-2017 to just 590 billion yuan (US$83 billion) at the end of October.
The crackdown has hit even some of the largest and longest-running P2P lending platforms. Tuandai, one of China’s largest P2P lenders which started operating in 2012, collapsed in March and left tens of thousands of investors scrambling to get back their life savings. Tuandai’s co-owners and two other people were charged with fraudulent illegal fundraising and illegally collecting people’s deposits.
Ezubao, one of the major platforms, allegedly cheated about 900,000 people out of more than 50 billion yuan (US$7 billion) within a two-year period. The company collapsed in late-2015.
Meanwhile, leading lending platforms including Ping An-backed Lufax and Shanghai-based Dianrong, have revealed changes in strategy for their lending businesses.
Dianrong said in June it was planning to focus on cooperating with traditional financial institutions rather than individual investors, and Lufax, which operates one of the largest P2P lending platforms in China, announced in August plans to cut its P2P lending business to less than 20% of its current operation. Lufax recently won regulatory approval to set up a new consumer finance business, which will “take over” its online lending business.
China is expected to start a long-awaited pilot program for the registration of P2P lending platforms before the end of the year. Some industry insiders believe that the rollout of the national P2P registration system will allow the industry to survive under proper oversight.
Financial regulators have also proposed a national regulatory framework, which has yet to be unveiled.