Nov 29, 2012 03:38 PM

Businessman's Murder Sparks Industry Scrutiny on Company


Wang Huishi (left)

(Beijing) – The killing of a businessman helming an online loan company has turned the spotlight back on the lack of regulations over peer-to-peer financing companies. 

An executive at Rowerp2p said the firm has appointed a new president and all client accounts remain 'normal.' An industry insider said the death of Wang Huishi, former president of the P2P firm, in October could be related to a business conflict. 

With inadequate oversight by banking regulators, the questionable legality of many practices of the online lending industry has plagued businesses that now process up to billions of yuan in loans every year. Online lending platforms typically generate revenue through commissions on loans between private individuals. 

Chinese newspaper Economic Observer reported earlier that the firm's Vice President Hu Jianing was being investigated by the police partly because her personal bank account was used in the firm's operations. was known to have used the personal accounts of the company's top executives for business transactions, according to a rival company's manager. 

A P2P firm often provides an online platform for people and small businesses to lend money directly to each other. It makes money by charging a commission from each loan and offering guarantee services. Companies like, however, have pushed the boundaries of the law by taking in deposits and issuing loans, according to industry insiders. 

In a so-called "insider" mode, lenders and borrowers are no longer matched directly at, said Bai Chengyu, secretary-general of the China Association of Microfinance (CAM). 

Instead, he said, a company "insider" takes care of making loans and transfers the creditor's right to clients, who deposit money with the firm. Individuals on either side of the transaction have no knowledge about the counterparts involved, he said.

" is representative of many small loan companies," he said. Similar to shadow banking, he said this type of business accounts for a large share of all companies in the P2P industry.

"This situation should have been avoided. P2P companies should only operate as an exchange platform," he said. 

There are currently no laws specifically addressing P2P financing companies, despite the China Banking Regulatory Commission's warn of their risks. 

Rowerp2p is a member of CAM, the industry's only trade association. It reported to CAM last year that it lost nearly 9.3 million yuan in 2011, with 94.3 million yuan in outstanding loans by the end of that year. 

The figures were received with skepticism. Dismissing them as a fraud, a rival company's manager said, "A single branch typically lends more than 10 million yuan in a month. has more than 20 branches nationwide." 

Another industry manager questioned the firm's lending interests. "On the surface of it, the advertised interest rate is not very high, but there are some hidden costs," a rival company's manager said. 

The annualized interest on a loan was up to 40 percent, he said, citing calculations based on a contract. The firm paid 10 percent to the client who provided money and pocketed the rest, he said. "This is an extremely high interest rate. The company is in effect a loan shark."

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