China’s Regulators See a Microlending Future for Troubled P2P Industry

China’s banking regulators are working with local authorities to formulate a plan for transforming surviving peer-to-peer (P2P) online lenders into microloan companies.

A three-year cleanup of the troubled sector continues to accelerate, and the risk situation has fundamentally improved, said Zhu Shumin, a vice chairman of the China Banking and Insurance Regulatory Commission (CBIRC), at a routine press conference Monday.

As a result of a previous policy to encourage the flow of credit to small businesses and individuals underserved by traditional banks, China’s P2P industry expanded to more than 3,600 platforms across the country by late 2015, according to Wangdaizhijia, an internet portal that tracks the sector. However, a string of pyramid scheme scandals and runaway bosses taking investors’ money forced authorities to tighten their grip on the industry starting in 2016.

Following a nationwide cleanup, the number of functioning P2P platforms plunged to 462 at the end of September, Zhu said. The outstanding loans of the remaining platforms declined 48% from the beginning of this year, he said.

The CBIRC has discussed restructuring the remaining industry with six provincial financial supervision administrations this month, Caixin learned from several industry participants.

In addition to converting P2P platforms into microlenders, regulators also have previously suggested that they become consumer financing companies and loan facilitators. Zhu’s comments seemed to indicate that microlender is regulators’ preferred option.

Licensed microlenders are funded by their own capital and need to meet certain minimal capital requirements. For instance, a microlender in Shanghai needs more than 200 million yuan ($28.2 million) to register its business. P2P platforms usually don’t have to meet such requirements. So far there has been no successful example of such a transformation.

Zhu said certain regions have achieved a complete exit of P2P online lenders. He didn’t specify which regions, but the central Hunan province issued a blanket ban last Wednesday on all P2P lenders.

As of today, more than 1,200 P2P lenders have exited the industry, most of which voluntarily chose to close or leave the business, Zhu said. As of the end of July, real-time transaction data at the 462 functioning platforms was included a national internet emergency center, Zhu said.

Investors are also more aware of risks, with fewer people blindly pursuing high returns in online financing, Zhu said.

Contact reporter Denise Jia (huijuanjia@caixin.com)