Rise of peer to peer funding networks in China..

I pointed to this interesting article on rise of P2P funding networks in India.

There is an article on the same happening in China too and of course on a bigger scale:

The Internet – which already has more than 680 million active users in China – will play a key role in facilitating this shift. In particular, online peer-to-peer (P2P) lending, a streamlined approach to credit allocation, may hold the key to expanding and deepening China’s financial sector, enabling firms to grow and innovate, and bolstering domestic consumption.

In online P2P lending, individual (and, lately, institutional) investors provide funds that can be lent out to individual borrowers, without involving a traditional financial intermediary. Loans can range from CN¥100 ($16) to CN¥1 million, and target small and medium-size enterprises (SMEs), as well as individual borrowers, that currently struggle to access credit through traditional institutions.

Over the last three years, China’s P2P lending sector has been growing annually at an astounding average rate of 245%, with its total value reaching CN¥253 billion last year. China now has more than 2,000 registered active P2P loan platforms, up from just 50 four years ago.

Even so, P2P lending still accounts for just a small fraction of overall lending in China. Last year, total loans issued through peer-to-peer networks were equivalent to just 1.5% of the CN¥15.1 trillion in consumer loans issued by Chinese banks. Clearly, there is plenty more room for growth.

This growth must, however, be carefully managed. The very factors that enable online P2P platforms to deliver loans quickly and broadly – that is, their reliance on consumer credit-ratings databases and eschewal of collateral or guarantees – can generate risks, as they leave important questions about borrowers unanswered.

It will have to be seen whether this P2P finance remains a fad or managed to survive..

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