Online peer-to-peer lending has been growing dramatically in China -- we've seen regular reports of record-setting months of loan agreements. But risk control has been a focus of the rapidly rising, yet highly unregulated business, after a leading firm was investigated for alleged illegal operations.
China is experiencing a rapid growth in peer-to-peer lending, but risk is also at an alarming rate, and this has prompted a huge number of closures.
It's all been recently put under the spotlight after Ezubo, a leading P2P firm, was put under a government investigation for alleged illegal business operations, with its 1.1 billion yuan of risk reserve deposits frozen and offices closed by police.
The sector is now worth over 130 billion yuan or 21 billion US dollars, according to industry tracker Wangdaizhijia.
But in the first 11 months of 2015, some 800 P2P platforms had shut, tripling the number of closures in 2014. Among them, more than half were due to runaway bosses.
Hu Bin from Inst. of Finance & Banking, CASS said:"Many companies are just using the concept of Internet finance in order to collect wealth illegally."
And the high returns of these P2P platforms, usually up to 15 percent annually, attract flocks of retail investors. But higher returns inevitably mean more risk, especially when there's a distinct lack of regulation.
"Many Internet companies are engaging in the p2p lending business, but as these companies are not registered by financial firms, they are not supervised by a financial watchdog," said Hu.
Experts say industry-wide regulations, to be released by China's banking regulator, will uncover widespread illegal behavior. That move is expected to force consolidation in the overcrowded sector.