Peer-to-Peer (P2P)

Lending Crisis in
China
 What is P2P lending
P2P enables individuals to obtain loans from other
individuals which means no involvement of financial
intermediaries.
There are websites that facilitate P2P and set the
rates and terms of the loans

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 Popular platforms

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 Why is P2P popular?

Home Investors: Borrowers:

improvement
Covers Better rates Lower rates
and auto
paying credit than than
financing
card debt loans conventional conventional
included savings borrowing

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 Why is P2P popular in China?

Change in
Lower base
Chinese Growth in the P2P serves
interest rates
mindset due to P2P industry consumers and
making P2P an
new payment due to initial SMEs; not
attractive
methods absence of focused on by
alternative for
(Alipay, regulation banks
investors
WeChat)

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 Why is P2P popular in China?

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 Why is P2P popular in China?

Number of Investors Growth rate

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 THE P2P PROCESS

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 The P2P process

Investor Money
opens deposited by
account investor

Financial Interest rate

profile posted determined
and risk
category based on
assigned risk category

Money
transfers and Loan applicant
loan payments reviews offers
handled by and accepts
platform them

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 The P2P process

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 The P2P process

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 The P2P process

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 The P2P process

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 The P2P process

In assign step, P2P is more complex than bank loan.

In the loan management step, bank is more complex
than P2P lending, because it uses a standard process to
ensure the loan is successful.

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 The P2P process

• Average lending rate between 18 and 20 percent

• Banks typically refuse to extend credit at such high interests.
• Bank supply curve is backward bending above 10 percent
• Expected return to lenders is 3.26%
• Average lenders have high risk tolerance and they have low risk of losing a
small amount in comparison to high gains.
• 6.1% for top 5 percent of lenders.

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 The big issue

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 $217.96 Bn
That’s more than the combined outstanding P2P loans
in ROW

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 The current crisis

Ponzi Schemes in the Guarantees provided by The Domino effect of P2P

form of P2P P2P lenders failures:
40% of total P2P lending Explicit guarantees in Refer next slide for details
majority of default cases

Effect: Effect: Effect:

Tightening of regulation Hasty investments and Panicked withdrawals
with over 100 new rules consequent high defaults from investors and
900 P2P sites shut down corresponding liquidity
by 2016 end issues

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 Defaulting platforms in China

Number of problematic platforms and Failed P2P Platforms in China

their expected default rates

2013 2014 2015 2016 2017 2018

Failed Platforms 93 394 1688 3429 4039 4334

Failed Platforms

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 The reasons for inoperative platforms and defaults

Investor confidence and Increased compliance Stiffening credit environment

panicked withdrawals costs

Subprime lending Larger macroeconomic Further consolidation in the

(Similar to 2008 crisis) challenges (US China industry (rather an
trade war) opportunity)

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 CORRECTIVE
MEASURES TAKEN BY
CHINA

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 Some of the
nation’s biggest CBIRC
Ordered more
platforms have transformed the
than 40 P2P
been told to role of P2P
lenders to exit
stop issuing lending
the business
new products platforms

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 Defaulters will
Ban on setting be penalised in Legal
up of new P2P China’s social consequences
lending credit rating for operators of
company system Ponzi schemes

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 EFFECTS OF NEW
REGULATIONS

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 Help in
Weaker online
Provide better avoiding risk No guideline
platforms will
protection to spilling into on how to
not be able to
individual the overall recover already
survive in the
lenders financial lost assets
industry
system

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 Thanks!
Any questions?

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