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People's Daily Online>>China Society

Private online lending deserves credit (3)

By Duan Yan (China Daily)

10:18, January 31, 2012

Growing fast; risks

"Since 2009, we will find new P2P lending websites launched every now and then, and some disappear a few months later, " Zhang said.

One of the survivors that is doing well is renrendai.com, which was started in October 2010 in Beijing. "Business started to pick up since the 2011 Chinese New Year," said its director of operations, Yang Yifu. "Right now, our business is growing at a speed of 20 percent every month."

Yang said renrendai.com helps facilitate an average of 10 million yuan in loans every month among its more than 110,000 users.

The fast growth of these intermediary websites during a time of tight credit has caught the attention of financial regulators.

In August, the general office of the China Banking Regulatory Commission issued a notice of risk alerts for peer-to-peer lending. It reminded traditional banks to establish a firewall against these intermediaries and to tighten their management of banking practitioners.

"Media reports have revealed that money from the banks was flowing into the private lending business. The notice is to remind banks to pay attention and not let the money flow into this new form of private lending," said Bai Chengyu, secretary-general of the China Association of Microfinance.

Among the association's 97 members from 27 provinces, four are P2P lending platforms. Other newly launched websites are applying to join.

Rating borrowers

The well-developed credit market in the West provides easy access to individuals' credit ratings, but Chinese websites need to come up with their own ways to rate the borrowers.

Among the several risks listed in the regulatory commission's notice, one crucial point covered the businesses' difficulty in controlling risks. "Individual credit reports in China are not as well developed as in the US, and they are only available to commercial banks," Zhang of ppdai said.

Both ppdai.com and Renrendai said their default rates remain around 1 percent, but checking borrowers' background information and verifying loans will become more costly as their customer bases grow.

Most sites remind their individual lenders to diversify their risk by bidding more often to different borrowers, and they have their own responses to loan default. Ppdai.com compensates lenders and puts the personal information of a defaulting borrower on its blacklist. Renrendai works with debt collection companies for its delinquent loans.

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