China’s Revamp of Peer-to-Peer Lending Slows to a Crawl

Regulators have stamped out the vast majority of China’s scandal-ridden peer-to-peer (P2P) lending industry over the last few years, but are facing challenges cleaning up the remainder amid the Covid-19 pandemic.

Since the regulatory crackdown began in 2016, nearly 5,000 institutions have pulled out of the sector, and the number of functioning P2P lending platforms had fallen to 139 as of March 31, down 86% from the beginning of 2019, official data show. The volume of outstanding loans had fallen 75% from the beginning of 2019 and the number of lenders decreased by 80%, according to a recent meeting of China’s online lending regulation leading group, an inter-ministerial team headed by the central bank.

The group said the Covid-19 pandemic had brought challenges to rectification of the industry, as it has made it more difficult for the remaining P2P lending platforms to pull out of the sector and move into new areas of business, and made it more difficult to defuse risks in platforms which have already shut down.

The uncertainties brought by the pandemic have to some extent hindered the platforms’ operation, transformation and collection of loan payments, according to a readout of the meeting that Caixin received.

The once-booming P2P lending industry in China has met a dead end since regulators tightened oversight in response to investors losing billions of yuan due to fraud, lax management and poor risk control by some platforms.

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In Depth: Is China’s Once-Booming P2P Sector Facing a Dead End?

P2P lending platforms were first introduced to China more than 10 years ago, and flourished by filling huge demand for small loans from borrowers with limited access to formal bank lending. In principle, the platforms are not themselves lenders and serve only as intermediaries that match lenders to borrowers.

But the lack of effective oversight and high returns promised to lenders by some platforms stoked a lending boom that attracted speculators and borrowers with poor credit records that could not pay back their loans.

In recent years, regulators have encouraged P2P platforms to either leave the industry or remodel themselves into licensed microlending companies or consumer financing firms which make their own loans rather than acting as intermediaries.

But it is not easy to obtain the necessary licenses. No former P2P platform has yet received a microlending license except for those who already held such a license themselves or through their related companies, sources with the knowledge of the matter said.

A platform head told Caixin that they were “constantly asked to submit supplementary application materials,” and that certain requirements must be met in terms of investment capital, shareholder qualifications and more. There is no clear timetable for the application process, the person said.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Gavin Cross (gavincross@caixin.com)

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