Per-to-peer, or P2P, lenders in China will henceforth function only as intermediaries and cannot raise funds on their own, the People's Bank of China said on Saturday.
Releasing fresh guidelines for the sector, the PBOC said: "P2P lending companies will serve only as intermediaries between lenders and borrowers and cannot 'enhance borrower creditworthiness' by raising funds of their own to lend."
P2P lending, often done without a traditional financial intermediary such as a bank, transaction volumes almost doubled during the first six months of the year with average annual returns of about 15 percent, according to data from wangdaizhijia.com, an online lending information and exchange platform.
"The guideline, confirmed our role as an intermediary, which shows that the government embraces and encourages innovation," said Zhang Lei, CEO of Beijing-based P2P platform Lantouzi.com.
"With the new guidelines, the P2P sector will become more prosperous, with innovative companies that conform to the regulatory requirements standing out and those short on innovation facing oblivion," said Zhang.
Wang Zhengyu, CEO of Shanghai-based P2P company China Rapid Finance, said the guidelines urge P2P platforms to focus more on information dissemination, matchmaking and credit assessment services.
"The guidelines also ban P2P companies from 'enhancing borrower creditworthiness', which confirmed that loss guarantee is not allowed," said Wang.
Ye Daqing, CEO of Rong 360.com, a search platform offering financial services, said: "The new policy labels P2P platforms as information intermediaries rather than credit intermediaries and orders Internet finance players to use qualified banks for capital deposits and management instead of currently prevailing third-party payment platforms, all of which will reshape the P2P market."
Kang Wen, CEO of Beijing-based P2P company etongdai.com, said the guidelines confirmed the direction and bottom line of the sector, which is of great significance for Internet finance development in China.
He expects that more specific rules would be released soon.
Dou Erxiang, a professor at Peking University, said earlier the Internet finance sector was a supplement to the country's existing financial system. But loss guarantees are the biggest risk for Internet finance firms.
The number of P2P companies nationwide rose from 1,627 in January to 2,028 in June. However, the number of non-performing P2P platforms rose from 59 in May to 125 in June, partly due to the stock market volatility, underlining the risks of Internet financial products.