China’s P2P lending industry must close within two years
(28 November 2019 – China) All existing peer-to-peer lending platforms in China must become small loan providers within two years, according to the latest official edict aimed at curbing the once-booming industry.
According to Reuters, all Chinese peer-to-peer (P2P) lending firms need to clear outstanding loans in less than one year before switching to small loans, as outlined in a notice issued by China’s Internet Financial Risk Special Rectification Work Leadership Team Office, which was launched by Beijing to mitigate risks in the online lending sector.
For firms that manage more than 5 billion yuan (US$711 million) in outstanding longer-maturity loans, the grace period can be extended by up to two years, according to the notice.
In October, Chinese police began an investigation into financial technology firm 51 Credit Card for allegedly hiring debt collectors who used intimidation and harassment.
Ping An Insurance-backed Lufax also said it would exit the P2P market, one of the first signs that the tide was turning against China’s lenders.
The transition plan, which will begin at the end of November, is “an active approach to resolve risks contained in the existing business of online lenders,” the official notice announcing the measures said.
Qualified P2P firms need to meet a capital requirement of no less than 50 million yuan (US$7.1 million) to turn into a regional small loan company, and no less than 1 billion yuan (US$142 million) to transition into a small loan lender qualified to operate nationally.
Fraudulent platforms and firms that contain serious credit risks would be banned from making the transition and forced to close.