Society

P2P loans building bridge to better future

(Xinhua)
Updated: 2011-06-08 16:34
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The fact that none of the loans offered through yinongdai.com have suffered from delayed repayment has considerably impressed Vivian.

"This proves that disadvantaged people can still have credit," she said.

So far, yinongdai.com has helped more than 12,550 creditors to provide a total of 2.8 million yuan in loans to nearly 1,000 rural families across China.

As a new form of micro-financing, P2P lending "not only fills in gaps left by the current banking system, but also offers convenience to rural borrowers," said Bai Chengyu, secretary-general of the China Association of Microfinance.

However, P2P services that are designed to help people in need won't always be able to count on a steady supply of funds, as investors invariably seek higher profits amid inflation risks, Bai said.

Ma Guangheng, 25, runs a clothing store in the city of Qujing in southwestern Yunnan province.

He borrowed 16,000 yuan via renrendai.com last year when his store's capital chain began to falter.

Ma's shop, which stocks stylish watches, handbags, sunglasses and other accessories, brings in about 50,000 yuan in profits every month. His high sales have prompted him to open a second outlet.

Ma borrowed another 25,000 yuan via renrendai.com in April this year at an interest rate of 20 percent, as guaranteed by Chinese law.

"I completed all the application procedures within three days and the money arrived immediately. It's so convenient and efficient," Ma said.

"I offered high returns to thank those who gave me a hand when my business was in a critical situation," said Ma.

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Loans with interest rates of lower than 10 percent usually receive little attention from investors on the website.

"High interest rates mean potential risks and low returns are usually secure. Investors must make their choices carefully," said Li Xinhe, founder of the Beijing-based website.

Li and his two business partners established the P2P lending service in May 2010 with the intention of following in the footsteps of Muhammad Yunus.

Yunus, a Bangladeshi micro-credit pioneer, won the 2006 Nobel Peace Prize for extending very small loans to millions of individuals living in poverty.

"We also studied the cases of Prosper and Zopa -- two popular overseas lending websites -- to try to develop a transparent and stable online lending platform for ordinary Chinese people," said Li.

The website has more than 30,000 registered members and has processed about 4 million yuan in transactions so far, according to Li.

The company screens out deceptive and unreliable borrowers during their credit examination process, said Yang Yifu, one of the co-founders of the website.

"So far, there have been only two cases of delayed repayments. We have tracked the debtors and they have promised to pay," said Li.

Zhang Nian, 36, a white-collar employee in Beijing, said she is seriously considering investing in P2P loans.

Returns on short-term financial products offered by some of China's commercial banks have ranged from 3 to 4 percent in recent times, but China's consumer price index -- a key inflation indicator -- has stayed above 5 percent for more than two years.

"(Investing in these companies) seems to be a good way to stop my salary from depreciating," Zhang said.

While acknowledging the advantages of P2P lending, Bai pointed out that this new form of financial service still operates in a legal gray area.

Although Chinese laws recognize the legal status of common financial activities and encourage civil investment, "there are still no rules concerning P2P loans, nor have these businesses been placed under the supervision of state authorities," Bai said.

If fraudulent P2P firms and low-quality loans start to take hold, investors might suffer serious economic losses, Bai said.

He wants P2P companies to set up a working committee to regulate the sector until the government steps in.

"We need to be administered. Legal market status and government supervision will only attract more investors to our businesses," said Li.

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