Most Online Lending Platforms Do Business Without License

(Beijing) — The vast majority of China's fast-growing online lending platforms still operate without a license despite a recent crackdown by regulators trying to tame a sector in which fraud is rampant.

There were 2,235 peer-to-peer (P2P) financing sites in China by the end of August, but only 242 of them had obtained an Internet Content Provider (ICP) license from local telecom regulators, according to data compiled by Yingcan Zixun, which tracks the industry. That means that nearly 90 percent of P2P platforms are operating outside the legal framework, the firm said.

Draft rules by China's banking regulators in August said online lenders should get an ICP license from their local telecom regulatory authority after registering with the government finance office. It's a requirement that reinforces an internet regulation issued in 2000 that demands a license for all for-profit Internet information service providers.

But, in practice, few online financing platforms follow the rules. That's partially because some financial regulators in different jurisdictions have complex approval processes that many P2P companies simply ignore. In addition, there has been a lack of legal awareness in the P2P sector, which has thrived in a regulatory vacuum. Now the government is trying to streamline the process.

The P2P industry has seen rapid growth in recent years, as the number of online lenders has tripled since the end of 2013. China seeks to stimulate the financial industry to help lower the fund-raising costs for small- and medium-sized companies, which are often shunned by commercial banks, which favor giant state-owned enterprises.

Contact reporter Dong Tongjian at (tongjiandong@caixin.com), and editor Ken Howe at (kennethhowe@caixin.com)