P2P loans building bridge to better future

Updated: 2011-06-08 16:34
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BEIJING - Borrowing money from strangers may sound like an odd proposition to some. But, China's farmers are now taking advantage of online peer-to-peer (P2P) lending in order to build better futures.

Yang Yanxia, 32, mother of two from Dingxi city in Northwest China's Gansu province, borrowed 3,500 yuan ($540) via, a P2P lending website, at the end of 2009 to help build her farming business.

Dingxi is one of the nation's most impoverished regions, owing to low agricultural yields caused by chronic droughts.

Yang's lenders were from first- and second-tier cities in China. They charged her a fixed interest rate of approximately 2 percent -- much lower than the rates typically charged by Chinese banks.

Before 2009, Yang's family earned only 10,000 yuan annually from their potato farm, and even that was subject to the whims of Mother Nature.

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After receiving the loan, Yang and her husband rented a plot of fertile land that effectively doubled the size of cultivation land. The family's newly expanded farms brought in 35,000 yuan in just six months.

Yang then used the profits to construct a barn to raise cattle, which she believes would be a more reliable source of income.

The world's first P2P lending service was launched in the United Kingdom in 2005, and has since become popular worldwide.

Most of China's State-owned commercial banks are unlikely to lend to people like Yang, either because the loans sought are too small or because they have no assets to offer as collateral. China's P2P lending platforms give people like Yang an alternative.

Prospective borrowers must provide identification and proof of employment, as well as proof of personal assets, in order to get a credit rating from the credit team of P2P platforms.

Lenders can pick who they want to lend money to based on the borrower's intentions, the terms of repayment and the interest rates offered by the borrowers.

Since Yang was not familiar with how to use a computer herself, she contacted a local micro-credit service center to help her with the online portion of the lending process.

"We submitted her information to the P2P website after carefully examining her credit and family situation," said Yang Farong, director of the Minfuxinrong Micro-credit Service Center. The center has offered financial assistance to the people of Dingxi for the last five years.

So far, 217 farming households in Dingxi have received a total of 770,000 yuan in low interest rate loans since started offering P2P services in 2009, Yang Farong said.

Yang Yanxia only had to pay an extra 70 yuan to her creditors and 68 yuan to the P2P website she used and the local micro-credit service center, in addition to her 3,500 yuan principle.

"I never expected to borrow money from strangers. It's so exciting to know that personal credit still has value," she said.

Canadian-Chinese Robert Li, 15, who studies at the Shanghai American School, became a P2P lender two years ago.

"The amount of money spent on a single meal in the city can be enough to change the life of a rural family," said Li, who has lent 28,450 yuan in loans so far with the help of his family.

Li believes that direct online lending is fairly transparent in comparison to traditional charitable donations, and gives lenders greater discretion in providing loans.

"Families with school-aged children, particularly girls, are our primary targets, because the educational background of these girls will have a significant influence on the upbringing of the next generation," said Li's mother Vivian.

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